Deeper Developing Markets Crunch Likely; We Started Nibbling Anyway

A deeper crisis in several major developing markets is on the way, we think. Securities prices in these financial systems -- which are so fragile and untested in crisis -- can go a lot lower since we're still not finding many articles about the risks (but here's a very good one indeed). As we've said many times, we're not going to raise our equity allocation to our long-run "policy allocation" until we see financial panic take down a few big developing markets players.. That's why we'd been 0% developing markets this year, and happy, even though we slashed our allocation about a year too early.

All that said, we've now raised our developing markets allocation from 0% to a mighty 1%. It makes little sense to deal in numbers so small, but we wanted to "break the ice." We expect to average down.