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Panic is the air. Asian stocks in particular have taken a shocking beating, and Gulf markets have joined in the rout. So much for the economic decoupling of Asia from the rest of the world.
A stock market decline is actually healthy in the long term, but those caught in it at the moment may not think so. What is less healthy is extreme volatility, as short-term experience tends to represent.
Heavy declines on the Dubai Financial Market and Abu Dhabi Securities Market in the past few days are a reminder that reversals can be sharp and painful, and emerging markets are even more vulnerable in this respect than their mature, international counterparts.
The bigger picture is the global economic scene. When America catches cold it's the rest of the world that sneezes. That idea was supposed to have passed, with the enormous wealth being generated in the emerging Asian giants and accumulated by oil-producing countries.
In fact, it seems that the possibility of a US recession is enough to scare the wits out of other markets, whose underlying economies have been dedicated to the export-based model. Thus, if the US goes down, activity in much of the rest of the world goes down with it.
The international economy is already suffering from severe imbalances in trade and capital flows, and from the dislocation of key exchange-rate relationships. The US Federal Reserve's emergency rate cut yesterday underlines the gravity of the situation.
The smaller picture is the heavy, local fallout, which is a sign that regional markets are joining the mainstream. Foreign participation has proven - as was likely - to be a mixed blessing, because money can flow out as well as in, especially if liquidity needs to be recovered elsewhere. Local investors who have bailed out are learning the hard way.
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