The Bank Credit Analyst Research Group

Dubai World - Chen Zhao at The Bank Credit Analyst Research Group

Does anyone remember Russia, Ukraine, Pakistan, Ecuador, Argentina, Moldova, and Uruguay, or going back even farther, Turkey? For hedge funds in particular, Dubai World's $59 billion problem of not quite being able to pay the interest it owes on its debt has far wider reaching ramifications. Most notably it has a financial and psychological impact on investors already leery of trying to earn something more than a 2 3% return, and relying on hedge funds to follow the emerging markets wave to get it for them. The conundrum is plainly and eloquently summarized in a weekly commentary published last week from noted economic research firm Bank Credit Analyst . Chen Zhao, the firm's managing editor and head macro thinker, took aim at hedge funds, particularly funds of funds, noting that their ability to generate the yield investors are looking for and expecting is "is actually hard to achieve, especially in a world of zero interest rates and with enormous financial and economic uncertainties." .  

People's Bank of China - Chen Zhao at The Bank Credit Analyst Research Group

Stock markets across Asia, Europe and Latin America also ended lower. Data from the People's Bank of China early last week showed that Chinese bank lending in July fell a staggering 77% from the previous month. Despite the decline, total lending growth this year was more than double that from the first seven months of last year. Even so, some investors fear lower lending would hamper recovery prospects, especially since much of the world is looking to China to support demand in the absence of the recession struck U.S consumer. Chen Zhao, an emerging markets strategist at BCA Research, said the correction in the markets was not a cause for concern, but rather some healthy profit taking that would bring them back into line after a rapid ride higher this year.