"It's a zero sum game, after all"
So how did the decoupling theory fail and emerging markets suddenly lose their charm?
One look at the MSCI index – that foreign investors’ favorite benchmark – gives some idea. Emerging markets benefit from the heavy weighting of commodity-related stocks in the index (more than a third, according to Merrill Lynch). The overall market is unlikely to plummet when mining and energy stocks are holding up so well. The corollary, however, is that emerging markets will be vulnerable if commodity prices tumble. Earlier in this decade, conditions were ideal for emerging markets, because commodity prices were going up and local interest rates were going down. Now interest rates are rising and there is the risk that commodity prices could at some point correct.
It’s a zero sum game after all.