In the past few months, the best-performing market in the world has been the S&P 500 in the United States. Emerging markets have notably lagged since November 2010. Part of the reason has been monetary policy.
Where as the West has remained very loose as it recovers from its mortgage bubble and tries to support massive government debts, emerging markets such as China and India increased rates in 2011 as these economies were seeing inflationary pressures.
Unlike the United States, China and India actually report inflation as it is happening and don't try to hide it with accounting mischief.
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However, when rates rise it makes borrowing more expensive and slows down the growth of corporate profits.
Therefore, it usually causes stock markets to slow down as corporate profits slow. That is part of the reason why India and china have lagged the U.S. market in the past year.
With these economies slowing down, I am expecting these central banks to cut rates and loosen monetary policy in the second quarter.
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Therefore, I expect these markets will again begin to outperform. If you see any weakness in the next few months before these countries begin to cut rates,
I would highly suggest buying these markets as lower interest rates should help their economies and stock markets rebound during the second half of 2012 into 2013.
About the Author: David Skarica David Skarica is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes the Gold Stock Adviser. Discover more by Clicking Here Now.
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