The U.S. sub-prime crisis is leading to a
global tightening of credit standards, and
the global economy is already slowing.
This is bad news for emerging debtor
nations such as the Baltics. China’s
massive stock market rally has all the
characteristics of a classic market bubble.
While rising commodity prices and
pollution problems are creating food
shortages and serious health issues.
We
could experience the popping of China’s
market bubble in 2008, which would
create a drag on the economies and stock
markets of many emerging nations.
Investments in Europe are more attractive,
with lower PE ratios, growing economies
and a strong currency. Mexico can avoid
the emerging market correction if it opens
the oil industry to competition. Japan’s
currency is undervalued, but the economy
is stagnant.
Economies with large foreign
exchange reserves are better prepared
to withstand problems from China’s
market bubble.
Positives
Negatives
European economies stronger, taxes lower
Global economy is slowing
Oil prices declining
Global inflation is rising, especially food prices
