Emerging markets set to continue losing altitude

IN recent weeks, emerging markets "have suffered what appears to be a perfect storm", says the Institute of International Finance. Over the past three months alone, emerging market equities have fallen by 15 per cent and their price earnings ratios are now at record discounts to those in mature equity markets.

Emerging market bonds too have taken a "battering", the Washington-based IIF notes. Whatever could have happened to these supposedly thrusting and vibrant young stock markets that took the investment world by storm a decade or so ago?

After advanced markets gorged themselves on securitised assets nearly a decade ago, and then suffered a predictable bust, equity prices in the world's leading stock markets went into a tailspin. But as their appeal faded to a glimmer, new stars - emerging markets - were seen on the horizon. Now, these too are suffering an eclipse and it appears to be a mystery as to why such bright nebulae should be burning out so quickly.