In the Gulf, bank earnings in '99 will be killed by the collapse of local stock markets, downsizing in petrodollar government project finance, shrinkage foreign trade volumes and, as usual, the leveraged post-bubble property lending hangover. Net-net, Third World earnings are headed much lower. Emerging markets are highly correlated with commodity prices and have been ever since the East India Company cornered the markets in Bengali jute and Chinese opium in the 1840's. When deflation hits, they tank like dominoes as they did in 1997-98. Five, with awful GDP growth, high real rates, collapse in oil prices, valuation models are meaningless.
Bull markets require new money, optimism and higher trading volumes.
But US and European investors just want to get out of the emerging markets. On Wall Street, appetite for foreign investing in non-transparent, illiquid, badly regulated, rigged and often discriminatory Third World stock markets is zero. They know that pension funds and retail investors in the West have gone allergic to Third World investing - permanently. Six, bull runs in emerging markets are correlated with low Fed funds rates, as in 1992-93. In fact, the rallies we saw since October everywhere from Caracas to Seoul to Hong Kong happened just after the Fed pumped high powered money in the banking system.