In recent months, some emerging market investors have preached the idea that fast-growing areas like most of Asia have “decoupled” from developed markets, meaning the economies of the two groups no longer move in tandem. The investing adage “When the United States sneezes, Asia catches a cold” no longer applies, the proponents of decoupling argue.Indeed, this seems doubly wrong. The big hope for avoiding a recession, or for keeping a recession relatively short and painless, is that a pickupin exports tied to the declining dollar will cushion the employment situation even as the building sector collapses. That, however, means that a sharp decline in US imports from Asia is all-but-inevitable. That's what would happen in a recession, but it's also what would happen in the most-plausible non-recession scenario.
But a recent slump in emerging markets, capped by Monday’s slide, means investor sentiment is changing.
This article available online at:
http://www.theatlantic.com/politics/archive/2008/01/asia-catching-cold/48068/
