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Developed economies are causing trouble again

Weekly investor research

29 June 2015

Most spikes in global risk aversion can be attributed directly to events in developed economies, where risks are not adequately priced in and fundamental economic problems repeatedly get swept under the carpet. Greece is an extreme manifestation of these problems, but they exist in most developed economies. Investors would therefore be wise to begin to distinguish between risk and volatility. The last time Greece defaulted, Emerging Markets (EM) presented a major buying opportunity. The same is likely to apply this time. Meanwhile, in EM, China cuts rates to support its economy as it undertakes unprecedented reforms, while Brazil tightens its inflation target. Venezuela prepares for elections, Romania cuts VAT and it is still raining in India.

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