The return of decoupling

By Felix Salmon
June 4, 2009

John Authers thinks that since emerging-market bourses have outperformed developed-market indices over the course of this stock-market rally, investors are betting on decoupling:

The underlying trend is clear; rightly or wrongly the market believes that China and the other emerging markets will pull the world through.

I don’t think that’s clear at all. Given the degree to which emerging-market stocks underperformed on the way down, it’s only natural for them to outperform on the way up.

Emerging-market stocks are high-beta assets, and in times of general volatility, as we’ve seen over the past couple of years, they exhibit really high volatility. You need a strong stomach to invest in them, and you’re likely to get whipsawed quite a lot. But as a result, trying to extrapolate a big-picture global macroeconomic forecast from a relatively short-term movement in emerging-market stock indices is a fool’s game. I don’t think that EM stocks have ever been good forecasters of anything; there’s certainly no reason to believe they’re demonstrating something in particular right now.

2 comments

Comments are closed.