Many emerging markets assets submerged in 2013 and continued to do so in early 2014. The negative reaction of currency and stock and bond prices in several emerging markets to a cautious statement (“taper talk”) by US Federal Reserve Chairman Ben Bernanke in May 2013 was swift. In early 2014, new-year recommendations by Wall Street´s biggest banks advised clients to cut their emerging-market allocations, for a diffuse variety of reasons such as elections, violence, lack of reform, and growing debt burdens.

The global economy is undergoing a fundamental change. Despite concerns over slowing growth in the People’s Republic of China, India, and Japan, and the possible dissolution of the eurozone, global economic growth is accelerating. How can this paradox be explained? If the global economy is shifting toward the more rapidly growing economies, then the world’s growth rate would shift toward the growth rates of the more rapidly growing economies. Thus, even if the growth rates of the PRC and India were to slow, global growth, which is considerably lower than that of both countries, would accelerate. The growth acceleration will lead to a new world economic order, associated with more rapidly growing countries such as the PRC and India, which are going to have a larger share of the global economy.

Unexpectedly weak growth in the first quarter of 2012 was a slosh of icy water in the hot Indian summer. The near-halving of GDP growth to 5.3% in the first quarter of 2012 from a stellar 10.1% in the same period in 2010 has led some analysts to question whether India’s high-growth phase was a blip. However, a close look at the underlying causes of the present downturn suggests that it is cyclical, although with deep underlying distortions that need a fundamental overhaul to put growth back on track. The structural drivers capable of sustaining high growth rates over a long period remain in place.