Investors who thought emerging markets were the bee's knees have suffered agonizing reappraisals. After several years of Federal Reserve-fueled rallies, less developed markets are now in the doldrums. Emerging economies depend on exports for growth. That means Europe and North America. Unfortunately, as long as we are still deleveraging, the export-growth model is no longer viable. For investors it's important to separate well-managed emerging economies, the Sheep, from the poorly run economies, the Goats. My list of Sheep-South Korea, Malaysia, Taiwan and the Philippines-have current account surpluses, which measure the excess of domestic saving over domestic investment. So they are exporting that difference, which gives them the wherewithal to fund any outflows of hot money, as have occurred in the past year.
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