OUTLOOK: Nemesis lurks in emerging markets

Whenever investment fads start to build up a serious head of steam, it is worth listening to those who have lived through the whole stock market cycle before, not just once but several times. One such is Bob Farrell, the veteran market analyst at MerrillLynch, who was over in London yesterday to give his annual briefing on Wall Street prospects to UK institutions.

His view is that the jolt that the recent Mexican crisis has given to the emerging markets investment craze - already foreshadowed in part by the market slide in Hong Kong this year - is by no means the end of the road. The flow of retail investors' cashinto emerging market funds bears all the hallmarks of an overheating speculative boom. But now we have the surest indicator of all. All the clean-shaven hot-shots coming out of business school are being signed up at ludicrous six-figure salaries to become emerging market analysts in the big financial firms.

Can nemesis be far behind? Farrell, while generally bullish about the stock market this year (Wall Street and smaller companies in particular), clearly thinks not. He worries, rightly, that investors will find it harder to get out of emerging markets than they did getting in. It all reminds him, he says wryly, of the infamous Cockroach Motel, where "you check in, but you don't check out". Investors, take note.