Can emerging markets survive the U.S. economic collapse?

Posted January 24, 2008

"Now that the markets have gotten whacked, every Tom, Dick and Harry with a press pass is trying to prove his brute bearishness — and the whipping boy of choice is emerging markets." — Justice Litle

by Justice Litle, Taipan Daily

Baltimore – (TFN): One of the small pleasures of visiting London is the traditional English breakfast. There is something wonderful about a leisurely start to the day, knowing New York isn’t set to open for four to five hours yet.

As I perused the papers this morning with my tea and toast, I was struck by the dark and dreary tone. The various financial rags seemed determined to outdo each other in terms of who could be more down in the mouth.

The over-the-top nature of the commentary reminded me of the Monty Python cheese shop sketch. In my mind’s eye, I could see a weary investor walking into an opinion shop, John Cleese behind the counter.

“I’d like to purchase an unconventional opinion, please. Preferably something a tad optimistic.”

“Nope, nope, sorry old chap — nothing like that on hand today. All pitch black and exactly the same I’m afraid. How about giving this window ledge duster a go?”

The financial media is deeply susceptible to fashionable opinions and flavor-of-the-month type thinking. The current flavor du jour can be summed up in the phrase “decoupling is dead.”

Now that the markets have gotten whacked, every Tom, Dick and Harry with a press pass is trying to prove his brute bearishness — and the whipping boy of choice is emerging markets.

Because emerging indexes got hit in the panic, the thinking seems to go, the whole 21st century has been called off. The doyens at Davos are deeply depressed, so you should be too. Everyone’s got to go down the drain with the Good Ship U.S.A., and anyone who can’t see that… well, they’re just blind, aren’t they?

The WSJ had a particularly roomy hit piece today titled “Emerging World Can’t Shake US.” No fewer than half a dozen journalists took more than 2,000 words to remind us that, while emerging markets are “far less fragile than they were a decade ago,” they still aren’t “strong enough to escape the pain” of an imploding U.S. economy.

“Far less fragile than a decade ago,” eh? Gosh, let’s see. Around this time a decade back, we had just seen Asia crumple up and hit the mat — broke, busted and crippled by a mountain of dollar-denominated loans they couldn’t pay. We were also on the cusp of a massive Russian default, again thanks to loans it couldn’t pay. The ‘90s were about Uncle Sam bailing out the poor, battered victims of hot money finance. Read on to learn if the emerging markets can weather the U.S. economic downturn.

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