The growing divergence in emerging markets

There is a growing divergence in the EM markets. This is very clear when we contrast the economics in EMEA versus the Asian markets. The EU periphery has been caught up in the Greek fiscal problem in ways that have not been seen in Asia. The borrowing is form the same banks and the most of the exports go to the rest of the EU. Any slowdown or credit tightening will significantly affect this countries. Growth rates were already lower in EMEA versus Asia. The growth will be even slower. given the EU turmoil. EMEA countries have also not raised reserves and run trade surpluses like the Asian tigers.

This does not mean that Asia is without potential risks. China plays the same role to Asian EM as the EU plays to EMEA. These regional and economic fundamentals are significantly different so that a contagion across all EM countries will not be likely. If fact, Asian EM sell-offs may be an opportunity to gain exposure cheaply.