Ghosts of '97 Continue Haunting Emerging Markets

On Wednesday, crude futures plunged 3.8% to a 19-month low of $53.53 per barrel in Nymex trading. Partially in reaction, the iShares MSCI Emerging Markets ETF dipped 0.2% to $108.30 after trading as low as $106.54 intraday; the EEM is down nearly 6% since Jan. 3.

Where's the Kobe?

Turning back to Asia, Nomura's Darby sees equities in Indonesia, Malaysia and China as overvalued right now and headed for a fall in 2007. Still, he remains bullish on Asia for the long term because consumption is set to grow and a falling oil price will benefit most countries in the region, all of which are oil importers apart from Malaysia.

But despite strong economic growth in Asia, actual productivity remains lower than pre-1998 levels, says Michael Spencer, chief Asia economist for Deutsche Bank in Hong Kong.

Lack of productivity and unsustainable growth were the key reasons for the Asian market crash in 1997; in a vicious investment cycle, aggressive foreign investment was pushing up asset prices, which in turn was attracting more foreign capital. The only problem was that these assets were producing so little.

"But that doesn't change the fact that it's the fastest-growing area of the world," says Spencer.

That certainly seems to be the view of the big U.S. companies right now, which are showing little concern for the region's vulnerabilities, as evinced by the following, each announced last week: