Decoupling Theory of Emerging Markets
After the first symptoms of recession of US stock and other financial markets, many investing firms and funds have changed their focus to emerging markets of Europe and Asia. Decoupling theory is postulated in this context for assisting the firms to reap from these emerging markets, but the validity of this theory is arguable.
Decoupling theory, as the name suggests, decouple emerging world markets from US markets. The followers of this theory believe that “because of the strong GDP growth of many developing countries, especially of China and India, their markets will remain bullish even at the time US recession.” The theory was pretty right till the end of last year, but things have changed considerably in this year. Most Asian markets are now on big recession after the crash of Dow John’s. Indian, Chinese and Hong Kong markets fell considerably in the last one week or so with around 10%, 18% and 3% respectively.
The major drawback of Decoupling theory is that it not considered the multiple economic relationships and globalization trends. Although the trades among Asian countries grown tremendously, the major trading partner for all major Asian countries is still United States and any recession in its economy will lead to recession in all these countries, although the effect may vary.
Decoupling theory, as the name suggests, decouple emerging world markets from US markets. The followers of this theory believe that “because of the strong GDP growth of many developing countries, especially of China and India, their markets will remain bullish even at the time US recession.” The theory was pretty right till the end of last year, but things have changed considerably in this year. Most Asian markets are now on big recession after the crash of Dow John’s. Indian, Chinese and Hong Kong markets fell considerably in the last one week or so with around 10%, 18% and 3% respectively.
The major drawback of Decoupling theory is that it not considered the multiple economic relationships and globalization trends. Although the trades among Asian countries grown tremendously, the major trading partner for all major Asian countries is still United States and any recession in its economy will lead to recession in all these countries, although the effect may vary.
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posted by Daniel Pipitone at
3:17 AM
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