BANGKOK -- Global stock markets have been on a roller coaster this year, with share prices in developed countries and emerging markets more closely linked than usual.
China's Shanghai Composite Index has fallen below the psychologically important 2,500 line, but bourses elsewhere in Asia and other emerging markets have shown signs of recovery.
Through the end of November, the MSCI Emerging Markets Index fell 9.7%, while the MSCI G7 Index, which tracks share prices in the Group of Seven advanced industrial countries, was roughly flat.
But in December the Emerging Markets Index fell about 4%, while the G7 Index plunged by roughly 10%.
Although global stock markets fluctuated wildly toward the end of the year, emerging-market equities outperformed those in developed countries. The relative strength of emerging economies' stock markets offers hints about where the world is headed next year.
"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy: that is, neither speeding up nor slowing down growth," said U.S. Federal Reserve Chairman Jerome Powell in a Nov. 28 speech.
Powell's remarks fueled speculation that the Fed might soon halt its tightening, which could put a brake on the outflow of funds from emerging markets to the U.S. and help their stock prices recover.
In late November, Chetan Ahya, chief economist at Morgan Stanley, said at a meeting with investors in Singapore that pressure on the dollar will ease, making emerging markets more stable.
Although economies in Asia and many other emerging markets are not that bad, Ahya said, "Unfortunately, there are some bad exceptions, [such as] Argentina and Turkey. These countries have made investors more nervous on the emerging markets."
If there is a pause in U.S. interest rate hikes, according to Ahya, that will halt the rise of the dollar and the weakening of emerging-market currencies. That could alter investor perceptions of these markets.
Thailand, for example, raised its key interest rate for the first time in seven years. Among Asian equity markets, Thailand is likely to attract buyers if investors rethink their portfolios as the U.S. economy slows and the Fed reviews its monetary policy.
The focus for analysts will be on how U.S.-China trade tensions play out. Mizuho Research Institute predicts that outside China, Asia will benefit from the trade row because manufacturers will shift production aimed at the U.S. and China to Vietnam and elsewhere.
But Stephen Roach of the Yale School of Management is more cautious, believing no one will benefit from the trade tensions. "Right now, China's growth rate is 6.5%. If the growth rate were to fall below 6%, that would clearly be disturbing the development of Asia as a whole," he said.