Worries about inflation have made the investing climate suddenly
riskier around the world, but a widespread bear market is being kept
That's because the global economy continues to show solid growth,
analysts say. Yet recent stock market turmoil, particularly in hot
emerging markets such as India and Brazil, signal an environment
that can bring quick penalties for investors.
Emerging markets, soaring for several years as they lured a
torrent of global cash, have reversed course the past two weeks. In
the US, the Dow Jones Industrial Average began the week down 4
percent from its six-year high of 11,642.65, which the index reached
on May 10. European exchanges have also fallen in the past two
"The markets have woken up to the fact that interest rates are
going to go up more than they were expecting - especially in the
US," says Nariman Behravesh, chief economist at Global Insight, an
economic consulting firm in Lexington, Mass. That, in turn, could
mean slower economic growth from Hamburg to Hong Kong.
Although the impact is global, he says, it is magnified in
emerging markets such as those in Asia and Latin America. Because
they had been the locus of investor enthusiasm, they face the
prospect of the sharpest pullback. "It's the emerging markets that
are a little dicey."
That pattern was evident Tuesday. Many Asian markets fell
further, extending a string of recent losses, while investors found
firmer footing in the US and Europe. Exchanges in France, Germany,
and Britain all rebounded with gains of more than 2 percent, and
shares rose in New York during morning trading.
Commodity prices have joined interest rates as a driving force in
recent days. Declines in the price of metals and other raw materials
- a possible harbinger of slowing economic growth - pose a particu-
lar threat to the resource-based economies of many developing
Tuesday, firmer prices for commodities including oil helped some
emerging markets stem their losses.
Although the mood on world markets is more sober, analysts say
it's still a long way from a bear market, typically defined as a 20
percent loss of value that can last for a long or short time.
"Emerging markets and the commodities markets will continue to be
very volatile" for several months, predicts Michael Cosgrove, who
publishes a capital-markets newsletter, The Econoclast, in Dallas.
But for long-term investors, he says, the best strategy may be
simply to ride out the storm.
"You're probably better off just sticking it out," rather than
selling on the hunch that deeper declines may be coming. …