The threat from the emerging world, what does it mean for investors?

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The relative weakness in emerging market growth, shares and currencies has been developing for several years, looks partly structural & likely has further to run. The secular underperformance by emerging market shares relative to developed market shares could have a fair way to go yet given the extent of outperformance last decade (see below). Second, in the current environment emerging markets are best invested in on a selective basis focussing on those less vulnerable to capital outflows (eg with large current account surpluses), less vulnerable to weak commodity prices and with less pressing structural problems, e.g. Korea and Mexico over Brazil. Third, given the greater importance these days of China and the emerging world the risk that problems in the emerging world affect developed country growth cannot be ignored. But if we are right and China manages to stabilise its growth then the impact should be minimal and limited to periodic scares as we saw in 1997 and 1998, rather than triggering a new global economic downturn & bear market in developed country shares. Click the (VIEW LINK) for full article.

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