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Regional Specialists Review February 2014

After gradually gaining confidence, investors have been shaken somewhat early in 2014 by a roughly 5% stock market pullback in the U.S. Emerging markets have experienced even more turbulence.

After a 30% gain in prices, this stock volatility is unremarkable. And, although some of the factors driving turbulence in some emerging markets definitely merit watching (i.e., currency weakness, rising inflation and interest rates), most developing economies appear to be in fundamentally much stronger shape than during past crises (from the late 1990s in Asia and Russia to the debt crises of Latin America before that).

Most other global macro-economic factors point to a modest pace of recovery, perhaps even an improvement. U.S. profits are at record levels, though their growth rate has moderated. And policymakers seem to be standing firm in their determination to support growth and bring inflation back up toward normal levels near 2%, from uncomfortably lower levels.

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