If you look at the above chart, whenever US sneezes the whole world catches colds. However, of late especially since 2004, when US growth is slowing down, the rest of the world seems to hold up well? Why?
Developed countries still contributing significantly to the world economy though the contribution has been going down from 80% in the 70s to 70% in 2007. In other word, the developing countries have been catching up very fast. What is really fascinating is the growth of China, from less than 1% contribution to about 6% to the world economy growth. This happened only during the last three decades plus. India is another striking example. No wonder every Tom, Dick and Harry want Chidia in their portfolio. Everybody talks about Emerging Market.
OK, the argument is so far so good but is the global economy decoupling? The honest answer is I don't know but 2008 will be an acid test. If the rest of the world economy still can hold up well, this will be a significant turning point for a trend change. It will rock the rest of the investment community. More money will be pouring into emerging market.
Part of the emerging market sell-off recently, in my opinion, people are scaling back their bets as doubts begin to creep in: safe haven of emerging market is a myth? If the big boys from Goldman Sach, Morgan Stanley and Harvard professors murdered the decoupling story, sell-off is inevitable.
The question still linger in my mind, is it the best time to invest? Let me think over this subject over the weekend. Should I do Top down or Bottom Up investing?
1 comment:
In my view, there're two mechanisms of coupling. The first is via trade flows. The second is via financial capital flows. The first is unavoidable: the world's demand engine is the US, and it's clear the US is entering recession. The second is the one worth watching: will US financial flows, in the form of direct investments and more importantly for equities investors --- portfolio investments, crunch to a halt? I'm betting it won't. But we'll have to watch how the banks and insurers situation develop.
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