Emerging markets feel drag of U.S. -- conventionsl wisdom of decoupling is off the mark?

--As the U.S. outlook has darkened in recent months, investors have started to question whether emerging markets can "decouple" from the U.S. economic train, and continue to grow as expected even as the U.S. slows. What's more, even if these economies prove resilient, the same may not be true of their stock markets, which instead of becoming less linked to the U.S., are actually becoming more connected. --Worries about the rising odds of a U.S. recession have been rippling across the globe and yesterday sent shares in Asia sharply lower, adding to recent losses. --Since the start of the year, benchmark indexes in Korea, Thailand, Turkey and Brazil all have fallen by 8% or more, and the Morgan Stanley Capital International Emerging Markets Index is down 7.9% in dollar terms. --While the developing economies remain healthy, their links with developed markets have grown since the last time the U.S. experienced a recession. In Asia, exports hit 55% of total economic output in 2005, according to the Asian Development Bank, compared with 45% of output in 2002. While intra-Asian trade has grown, about 60% of Asian exports are eventually consumed in the U.S., Europe and Japan. --Together they are sitting on an estimated $4.1 trillion in central bank reserves, making a repeat of past crises highly unlikely. Local consumers are playing a bigger role in spurring economic growth, which helps to counterbalance the dependence on exports. --Economic impact aside, emerging-economy stock markets have become more highly correlated to those in the developed world in recent years. That's because global investors have piled into these countries, deepening the connection to world-wide investment shifts. And when markets get more volatile, they all tend to move together, as they have this week.