Global investors have become gun shy about owning bonds and equities in firms based in emerging markets. What was once considered a part of the world’s markets where a strong return was nearly a lock, the so-called Second and Third World have lost their luster.
The economy in China is slowing. Russia is not longer a "friend" to the US. Several large companies in India have warned that their growth rates have fallen off sharply.
According to the FT, "Outflows from emerging markets bond and equity funds reached $29.5bn over the past three months, the highest level since at least 1995."
The troubles in the New World may help the ancient markets of the US and Europe. No matter how dire that drop in indexes in Germany, the UK, and America appear to investors in those countries, they are safe harbors compared to markets in Ukraine.
The slowdown in the global economy may have hit the US early. It has begun to spread abroad as real estate prices and export rates in nations include China fall into decline. While America has been early into a recession it may be early in an exit. If the housing market here is at the foundation of trouble in global markets, the benefit of any improvement in the situation should have its first impression here.
For the last several years, what was good for China, Russia, and other markets still in early stages was bad for the US. There are only so many opportunities to go around.
The screw has turned and the US markets are the most likely beneficiary.
Douglas A. McIntyre
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