Emerging markets, the new theory goes, have decoupled from the rest of the world. The idea is appealing – but does it stand up?

Emerging equity markets are, with insignificant exceptions, still up so far this year. China’s Shenzhen “B” shares, for example, have risen 167 per cent in dollar terms in 2007. But all are off their highs for the year. Shenzhen has lost more than a 10th of its value since October 16, while Brazil and South Korea have fallen 6 per cent and 9 per cent respectively since October 31. Spreads on emerging market sovereign external debt have widened to 254 basis points over US Treasuries, says JPMorgan, from less than 200bp in September.