As the old adage says, "when the U.S. sneezes, the rest of the world catches cold". Unfortunately for the global economy, and emerging markets in particular, today, the good ole U.S. of A has come down with a case of severe pneumonia.

Driven by the ongoing U.S credit crisis and a worsening global economy, investors are charging out of emerging markets in droves. Heavy selling caused MSCI's main index of emerging equities to slide about 4.8% Wednesday to its lowest print since 6/05; far further than the 3.1% dip for its index of world stock markets.

One major force behind the drops was mounting global concern that Argentina may be set to default again, not ten years after its $95 billion 2001 collapse, the largest ever. The country's government has taken drastic steps to try to prevent another disaster and opted to nationalize its $30 billion pension plan in effort to pay down debt. Judging by the market's reaction, the move is probably just delaying the inevitable.

World economies were largely down across the board Wednesday and a number of key indicators point to tough times ahead. China has reported that September factory output reached a 6-year low while 6, that's right SIX, emerging European nations (Hungary, Turkey, Ukraine, Iceland, Serbia & Belarus) are currently in talks with the International Monetary Fund for assistance. In addition, the U.S. dollar recently hit a two-year high and continues to advance as U.S. investors bolt out of foreign stocks and into U.S. Treasury bonds.

Despite a number of signs clearly indicating that the U.S. credit crisis has spread its ugly wings globally, the future of emerging markets is still a hot topic of dispute.

On the positive side, analysts note that developing nation GDP growth isn't expected to slow much from its recent annual levels. Moreover, optimists point to a recent Merrill Lynch report that states that emerging markets are cheap from a number of standpoints including their 10 to 1 price-times-earnings ratio, or 20% discount to developed markets.

On the negative, in addition to what has been stated above, the United States and Europe are now both faced with almost imminent recession which could ultimately be the worst they've seen in nearly half a decade and lead to a full fledged global recession which would strongly impact most emerging markets. Supporting the theory that a global recession is indeed imminent over the near-term, the IMF forecast a slowdown in global growth from 3.9% in '08 to 3% next year.

Furthermore, borrowing rates for developing nations have hit a six-year high and even world-renowned consumer product brands such as Dell are reporting softening demand in emerging regions. In addition, well respected NYU professor Nouriel Roubini and other economic experts feel that the ongoing global market meltdown may even force policy makers to take measures as drastic as closing down markets for a few weeks in order to temporarily stop the bleeding. Overall, the general consensus on the negative side here is that this is just the beginning of tough times for emerging markets.

Believe it or not, the United States banks are actually five times less exposed to emerging markets than their U.K. and European counterparts, making our nation somewhat of a safe haven despite our growing debt and widespread economic problems. That being said, given the volatility of emerging markets today, I suggest playing it safe for now and paying close attention to developing markets that have historically been impacted to a lesser extent by slow downs in the U.S. and global economy's.

One such emerging economy is Peru, the largest silver producer in the world and the 3rd largest source of copper, zinc, and tin. While other Latin American nations including Argentina, Bolivia, Ecuador and Venezuela teeter on economic crisis, Peru may be a bit safer of a bet. The country is also expected to boast economic growth of 9.2% in 2008, the best in Latin America and has experienced economic expansion in each of the past 86 months. Moreover, there is no credit crisis in Peru and BAP is the country's leading financial services holding company.

One company poised to benefit from this emerging market's growth is CreditCorp Ltd. (NYSE: BAP). The stock is now trading at a discount of roughly 86% to its 52-week high of $86.91 and has been hammered over the past month along with many other emerging market stocks. I'm anxiously awaiting the upcoming quarterly report and was quite impressed with the company's second quarter results. Quarter-over-quarter earnings grew nearly 24% from $109M to $135.2M while net income approached $74M.

With the U.S. market maneuvering through troubled waters, I'll be on the lookout for opportunities elsewhere over the coming months and weeks. Since I've always loved BAP despite Jim Cramer's endorsement, which oftentimes can be the kiss of death for some stocks, but its been a bit too rich for my blood, I'll likely analyze the company a bit more closely in the future.

Labels: Argentina defualt, Creditcorp Ltd., Developing Nations, Economy, Emerging Markets, NYSE: BAP

The most recent report out of the U.S. Commerce Department provides the market with a much needed morale boost, stating that our economy experienced its fastest growth - 3.9% - in 1.5 years during the July-September quarter.

Speaking about our country's economy, Ed Lazear, the chairman of Bush's Council of Economic Advisers commented "This is an extremely resilient economy," he said. "It is really quite remarkable."

Although the credit crunch is obviously a major concern, the article below provides more than a glimmer of hope that maybe things aren't so bad after all. At least not quite yet.

http://biz.yahoo.com/ap/071031/economy.html?.v=25

Labels: Economy, U.S. Commerce Department