October 27, 2009 6:42 pm

Short View: A decoupled world

Decoupling was not supposed to work this way.

The grand theory was that decoupling by emerging markets would be good for everyone – they would grow even if consumers in the developed world caught a cold, and help everyone through.

The latest data suggest a decoupled world, but that does not seem so positive. In Asia, the Reserve Bank of India sent a signal that it was ready to start tightening monetary policy once more. Programmes to help finance banks were withdrawn, and the bank upgraded its inflation forecast – a big political issue in a country where many live in poverty. Indian stocks are now at their lowest level for a month, down 8 per cent from their recent peak.

Meanwhile, the recovery of South Korea, which led the world into recession last year, is stunning. September’s total exports were up by two-thirds from January. Worries now focus on whether the authorities will have to intervene to push down the value of the won, which has appreciated by a third since the worst days of the crisis. The country is benefiting from its move to link more to China, and less to the US.

While Asia is overheating, the confidence of the US consumer remains mired in depression. Usually, the Conference Board’s consumer confidence survey tends to follow the stock market. When stocks do well, consumers are more optimistic, and vice versa.

But despite the rally in stocks, consumers’ assessment of the present dropped last month to its lowest level since 1983, according to the survey, while optimism for the future dipped sharply. Both were nasty surprises for the market. Main Street still fails to see the reasons for optimism that have captivated Wall Street.

So Asian economies are already at the point where overheating is the main danger, while US consumers, for all the money thrown at them, are still not feeling any better. This is not encouraging.



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