The perception of monetary tightening drives the market

The most important driver for markets is the perception that monetary policy is tightening across the globe. Some of this is healthy tightening, as we have seen in China.

We expect similar action in India and Vietnam, where the slowdown has been relatively shallow and inflationary forces persist. Although this could dampen equity market action in the short term, longer term we expect these markets to advance on the basis the economic cycle will be extended by prudent action now. In Europe, however, the tightening action is taking a different form. Here, markets are imposing a more stringent solution on Greece, and Spain and Portugal.  The message from the markets is clear – get budget deficits on a declining path quickly and credibly. Finally, there is...