Decoupling Of Emerging Economies

It's a very important topic of discussion among large investors and alike to argue that emerging economies like china, india, singapore, taiwan, philippines, brazil, malaysia are insulated from a slowdown in US economy. Principally this theory has it's merit's and disadvantages. As US still constitues large portion of global trade and any slump in it's consumption is bound to have a cascading effect on all those economies which are exporters to US. Secondly any slowdown in the demand for commodities from US will ultimatley have dampner effect on exporters of these commodities and thus on their domestic GDP. Thirdly, emerging economies are inherently risky to invest due to lack of depth and sufficient financial instruments to attract large portfolio investments in their economies. They also have low ability to withstand internal financial shocks and thus very vulnerable for high and sustained volatility. However, on positive side, these economies over the past 5 years have accumulated huge foreign exchanges, i.e. Dollar denominated assets, and are more confident about their growth outlook. Secondly on brighter side, investors and traders who have become wary of investing in US after subprime mess and slowdown in US consumer spending, is increasingly looking at these emerging economies to invest and make a quick and high return. Also due to the presence of all time high risk appetite to get higher and higher returns is also fuelling this rally in emerging stocks and real estate prices. This process will continue to baffle conservative investors, unless some major global shock disturbs this risk appetite and hence this relentless rally in emerging market stocks.