Emerging markets no big threat

EMERGING markets aren't yet sneezing enough for the rest of the world to catch a cold. That's the diagnosis of economists from Deutsche Bank to Nomura International after the stocks of developing nations suffered their worst start to a year in five, raising concerns they are turning from the driver of global growth to a drag.

The optimistic take is the pain will be limited to a few unbalanced economies - including Turkey and Argentina - with little heft abroad, and developed countries now have domestic sources of growth and support from central banks. The risk is that slowdowns and sell-offs deepen in bigger economies, such as China, infecting the financial markets of industrial nations and depriving them of demand for exports and commodities.

"We view the past week as more a warning" about what could happen "should contagion become more entrenched and broadbased across emerging markets", said Jacques Cailloux, chief European economist at Nomura in London. The MSCI Emerging Markets Index is down 7.1 per cent since Dec 31, compared with a 3.4 per cent decline for the MSCI World Index. Equity volatility in developing nations jumped the most in two years last week amid a sell-off in their currencies, with the Chicago Board Options Exchange Emerging Markets ETF Volatility Index rising 40 per cent to 28.26, according to data compiled by Bloomberg.