Emerging market equities (and indeed bonds and currencies) have surged in the global flight from safe assets and increased liquidity. The relatively more optimistic growth outlook for these economies has analysts dusting off the 'Decoupling Theory' (more of a marketing catchphrase than an economic theory in my view). India and China are expected to grow at or above 5% this year, contributing the bulk of global growth even as most of the advanced economies remain deep in recession. Investor inflows into emerging markets have surged dramatically; in the three months after the March lows, they exceeded those for all of 2006, and already central banks are intervening to build international reserves again. There is no question that these markets had become fundamentally cheap at the lows,  having sharply underperformed developed world markets in 2008. While the S&P 500 Index slumped 38.5% in 2008,  Brazil was down by 41.2%, Russia fell 72.4%, India 52.45% and China lost 65.39% of its market value. 

Brazil, Russia India and China (BRIC) hold a total of $2.8 trillion in international reserve assets, about 42% percent of the world's total. They comprise about 15% of the world economy, 40% of the world’s population and output (in purchasing power parity terms), and thus there is a widespread belief that the group has the potential to lead global economic growth. China has been a particular darling of the decoupling theorists; despite accounting for just 8% of the global economy, and not yet quite matching Japan's economic weight in dollar terms , it has become an article of faith that China's no-holds barred stimulus response can lead us out of this downturn (and the current 26% annualized money supply growth makes the Fed's efforts seem half-hearted).