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Excerpt from Morgan Stanley economist Stephen Roach's June 16th essay:

...it is possible that emerging market securities have benefited largely from the combination of excess global liquidity and an increasingly urgent search for yield by fund managers. If that’s the case, and the liquidity cycle now turns, a sustained correction could well be in the offing...

...there’s every reason to think that the next crisis in emerging-market economies will arise out of circumstances that will be very different than those that nearly brought the world to its knees in 1997-98.

At the top of my list is a possible capitulation of the American consumer -- long the most powerful engine on the demand side of the global economy. Such an outcome would strike at the heart of what I judge to be a still-chronic weakness in the developing world -- excess reliance on US-centric external demand. In large part, emerging-market economies have not succeeded in boosting internal consumption and, as a result, they remain heavily dependent on exports as the sustenance of growth. By our reckoning, exports were 38% of developing world GDP in 2005, well in excess of the 26% share in the developed world as a whole...

...We debate the US consumption outlook endlessly. With consumers refusing to flinch over the last few years, the bear case admittedly suffers from a major credibility problem. But now the stars are in especially tough alignment: A persistence of weak labor income generation, a faltering of the property-induced wealth effect, a sharp run-up in energy prices, negative personal saving rates, and mounting debt service burdens all point to a consolidation of discretionary consumption in late 2006 or early 2007.

Source: The Risk to Emerging Markets Stocks