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The journey from fear to fact

Weekly investor research

13 January 2014

Sell-offs in Emerging Markets (EM) often start simply because investors are ignorant about how EM will respond to changes in the global environment, such as Fed tapering. In the face of uncertainty, investors turn to out-dated notions of EM fragility and let themselves be guided by past behaviour. Selling ensues, regardless of the state of affairs in EM. This irrationality only goes so far, however. Fact eventually defeats fear with rewards to those who pay attention to value. 2014 is likely to be the year when fact defeats fear. Meanwhile, away from EM the combination of weak payroll data in the US and the re-commencement of Fed tapering increases the risk of a stock market correction in the US, and in Europe the ECB took out further insurance against another attack from Bond Vigilantes.

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