Therefore, there will have to be reforms. Over the past ten years, government intervention has increased sharply in many emerging economies, via state banks, all kinds of subsidies and unclear, counterproductive regulations and taxes. It has become more difficult for private companies to make a profit, which is clearly reflected in the low investment growth of the past few years. Improving the investment climate should ultimately lead to more investment and higher economic growth. That will require reducing government involvement, as well as tax reforms to create room in the budget for investment in infrastructure. And labour market reforms will be needed to improve the competitive position after years of high salary growth.

Last year, it looked as if the sharp market adjustment and falling exchange rates would lead to policy changes. The pressure had mounted so much that reforms seemed inevitable. Since then, that pressure has eased in response to rallying capital flows. Few countries are currently implementing reforms to improve domestic growth potential. Mexico is the exception. And India is the country where the prospect of reforms is creating the greatest excitement.

Since the elections in which reformer Narendra Modi won a large majority, expectations have been high. The market has looked far ahead in terms of all the possibilities. Given Modi's ambition and track record and the enormous scope for improvement in the crippled Indian economy, the future looks bright. There will probably be many changes over the next few years: investment growth will benefit, infrastructure will improve substantially and economic growth could rise by several percentage points. In the short term, however, expectations seem a bit too high in view of what is actually possible.

For an opportunist investor wishing to benefit from possible reforms in the emerging world, there may be more to be gained in Brazil over the next few months. The chances of the opposition winning the October elections have clearly increased. If President Dilma loses the elections, then economic policy will change dramatically. Tax reforms and a serious reduction in government intervention in the economy will send the market soaring. But that is still an if.