Before the recent market upheaval, it was common to hear people remark that, unlike past events such as the 1997 Asian financial crisis, which triggered a massive sell-off around the globe, markets would no longer fall in tandem due to an increasing sophistication among investors.
Unfortunately, while investors may have become more sophisticated in terms of their ability to distinguish between markets, the links between global economies have simultaneously grown stronger, linking them more closely than ever.
Take the current crisis in the United States.
The inability of US consumers to continue buying goods, means that production will slow in China, which in turn means that sales of natural resources in Brazil (purchased by the Chinese to manufacture the goods) will slow, dragging down the Chinese and Brazilian economies.
So, while investors may have grown more sophisticated in their reluctance to paint all emerging markets with the same brush, any gain in investor sophistication has been more than off-set by a strengthening of ties between economies.
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Posted by: Dissertation Layout | November 20, 2009 at 12:17 PM