The theory of "decoupling" is being debunked, meaning the U.S. economy could still affect emerging markets and their exchange traded funds (ETFs). One big reason? According to Reinhardt Krause at Investor’s Business Daily, economists are factoring in the state of our economy into their growth forecasts for emerging markets. Demand for Asian exports here and in Europe could slow, and GDP growth will slow in those markets as a result.

Still, though, growth in emerging markets is expected at a rate of 7.5% for 2008, assuming that the U.S. dodges a recession and commodity prices don’t plummet. If consumption within the emerging markets grows, that could soften the blow some, too.

Emerging market equities have done well for three consecutive years, and investors are still pouring their cash into these funds. Even though global growth may pause, Merrill Lynch expects emerging market stocks to notch returns of 15%-20% next year.

These ETFs should reflect the growth of emerging markets:

  • iShares MSCI Emerging Markets Index (EEM) up 31.1% year-to-date
  • Vanguard Emerging Markets Stock ETF (VWO) up 39.6% year-to-date
  • SPDR S&P Emerging Markets (GMM) up 30.7% since March inception

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.