Emerging markets confidence wobbles

Here we go again. In just about every recent period of market volatility, emerging markets - for all their vaunted growth credentials and sound finances - have slumped by more than developed markets. This one is no different; the MSCI Emerging Markets index has fallen 24 per cent so far this year compared with the FTSE 100's 16 per cent fall.

There are several culprits. There are concerns about whether growth rates in China and India can be maintained, especially the former, where the government is cracking down on property speculation. And it's hard for export-driven economies to prosper when their main customers - the US, Japan and Europe - are in the doldrums. "Hot money" is being withdrawn; just look at Anthony Bolton's Fidelity China Special Situations investment trust. Its shares have fallen 39 per cent in the past six months and have moved to a small discount to its net assets.

And then there's corporate governance, neatly epitomised by events at Asian Citrus , an Aim-traded food producer. Its shares lost a third of their value in a week after key supplier (and 13.4 per cent shareholder) Chaoda Modern Agriculture confirmed two senior board members were under investigation in Hong Kong for insider dealing. More serious scandals have overtaken some China plays in other markets, notably New York.

"Heard it all before" is the reaction of many emerging market bulls, especially when it comes to China, which has defied many 'hard landing' predictions. Standard Chartered's China economist Stephen Green notes that China's manufacturing indices remain in growth territory despite their recent slowdowns, and points out that inflation is showing signs of easing, which in turn would allow tight monetary policy to be loosened.

Goldman Sachs also tried to sooth nerves about emerging markets this week: "The events of 2007-08 showed us that emerging markets economies, and by extension the world economy, can be relatively resilient to a slowdown in developed markets economies, as long as they are facing simply the transmission of real economic weakness, and not financial stress either to trade channels or their own banking systems."

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