It has become a yearly routine to go through a correction in the Emerging markets and then again recovering from it. But is this global correction a signal towards a global meltdown or just a blip in the global markets.
Some factors to consider.
1. Is the growth happening in US?
2. Are the BRIC still growing?
3. Political Stability in the Middle East.
USA: Alan Greenspan couldn't hold his tongue and has already spitted out the venom "Recession in USA during the later part of 2007". I think his statement may eventually be a blessing in disguise. It would be too much of a hit if the markets rallied further and then fallen. Basically the higher the rise the harder the fall, so did Mr. Greenspan help us to mitigate the harder fall? That time will tell. I personally feel that there might be a very very mild recession if any, at least the economic indications such as Inflation and unemployment point towards this pattern. Generally as a rule of thumb I think a higher inflation is eventually followed by an increase in unemployment. So in the US, we may see some increase in unemployment- though globalization pressures may keep the inflation low contrary to my rule of thumb, but a bust in the local housing market may eventually add to the unemployment.
BRICs: I am not sure why an 8% growth in China is consider as less aggressive. If China has decided to slow down from 120 m/hr to 100 m/hr, it is still an aggressive growth. It will still need oil and other commodities -oil price is not influenced by the demand in China but by the command of USA. I think it is a good long term strategy for India and China to spread its prosperity and wealth to the rural section. It will pay well in the long run to develop an organic economic growth rather than just depending on the exports to the developed countries. So why is everyone panicking. In fact, a mild recession may send more jobs towards the BRIC and sustain the past growth rates. So BRIC will still grow better than US, hence it is still worth investing in Emerging markets.
Political Instability/Gold/Oil: The dollar does seem to be under some devaluation pressure. But the devaluation may never happen. US will be more concerned to attract all the savings from Asia to US than to let it go to Europe, nor would US want the oil to be traded in Euro, which would mark the beginning of the end of the Greenback power as the world currency. As long US has negotiations with middle east countries, the oil will be stable and so will be Gold. But does US want this stability, which may not be in the best interest of it power hungry attitude as pointed out to me by many? Despite my disagreement over the war issue, I still buy into the argument that the big bully of the world may want to have a fight to showcase its arm twisting skills and thus strengthen its financial power over the world.
Bottom line - Growth in US may be slow or probably flat for the next 12 months. Emerging markets will grow this year too. Gold will still go up. World will be unstable for few months, which may become another yearly event. So stay invested in Emerging markets, buy Gold and don't get into US property market for another year.
