Emerging market killjoys say don’t ignore commodity, China risks

LONDON (May 11): Dissenters in the face of the relentless emerging-market rally are speaking out.

A drop in oil prices and China’s crackdown on leverage -- spurring this month’s rout in industrial metals and iron ore -- is setting the stage for a correction in developing-country assets, according to a growing chorus of investors and analysts. While still in the minority, they warn a tide of capital inflows and a jump in bullish positions have left valuations at an inflated level after gains in emerging-market stocks, bonds and currencies this year.

Global markets have largely shrugged off Beijing’s move to tighten the credit spigot -- which has sparked a rout in domestic stocks and bonds -- driven by sanguine projections over the outlook for China’s output, exchange rate and capital account. But bears say that investors are discounting the risk that the reduction in leverage will slow growth in other developing nations as well.

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