Saturday, August 1, 2009


With world equity markets rallying, the 'decoupling theorists' are back again.

Here is an interesting perspective from Ruchir Sharma -Head of emerging markets at Morgan Stanley Investment Management. I follow his market commentary, and I have always found his views to be rational, well thought out and consistent.
He is one of the experts whose views I follow!

Source: US revival key to emerging market recovery: Morgan Stanley ...

Below are some of the very valid points that he makes in his article.

  • Given the trade and capital flow linkages, developing countries cannot pull away from the developed world too far, too quickly.
  • China's policymakers have already succeeded in stimulating their economy but beyond a point, it too needs the largest buyer of its goods - the US consumer - to start spending again. If that doesn't happen soon enough, then the global economy faces the prospect of a relapse.
  • It's then all down to the US Consumer to determine whether a global economic recovery gains traction by moving beyond the inventory rebuilding stage.

That pretty much sums it up. There is a lot of manufacturing capacity out there. A recovery can be sustainable, only if genuine consumption resumes.
Given the weak financial position of the US Consumer, any sustainable recovery in the medium term looks doubtful, and equity market investors/speculators that fail to understand this point are likely to be disappointed.

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