The final link

The very term “emerging markets” should be used sparingly and with caution. Three decades ago, they were still called “developing markets.” At some point we have every right to demand these markets emerge, already. The period since 2003 has been an unusual one in global markets. The Federal Reserve and its sister central banks re-liquefied both real economies and financial markets at the expense of creating massive global imbalances, such as the U.S. current account deficit. While China has been the most notable beneficiary of increased demand, all emerging markets have benefited as well.

History teaches us boom times do not last forever, our fondest wishes notwithstanding. If the 1997-1999 experiences are any guide, the next financial crisis will affect the most leveraged economies first and hardest. If this occurs, look for a weaker BRL, a lower Bovespa, higher BRL volatility, weaker Brazilian debt and higher Brazilian CDS costs, and in this combination.