Why the UK market shake-out was long overdue

Most City people think that May's market shake-out was long overdue, but it was also an early warning that tougher times lie ahead. And it should prompt a rethink on emerging markets for investors.

Most City people seem pretty relaxed about this month's shake-out in the markets. The general view is that it was overdue. Investors had become so complacent about risk that they hardly cared whether they were buying an emerging market bond or a blue-chip share, just so long as it offered a yield. Hedge funds had acquired such a taste for exotica that they had started sniffing around countries not usually associated with red-blooded capitalism. One fund recently sought help financing a real-estate investment in Cambodia. So the last week has been a much-needed reality check.

Hedge funds helped drive the markets up and will largely determine how far it falls. So far, the shake-out in the UK market hasn't been that dramatic.

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Simon Nixon

Simon is the chief leader writer and columnist at The Times and previous to that, he was at The Wall Street Journal for 9 years as the chief European commentator. Simon also wrote for Reuters Breakingviews as the Executive Editor earlier in his career. Simon covers personal finance topics such as property, the economy and other areas for example stockmarkets and funds.