A new year, a new decade, but what kind of economy? Let me start big and gradually bring it down to size.

The big picture is that the world economy is recovering. That recovery is, however, heavily skewed towards emerging economies such as China, India and Brazil. The International Monetary Fund's numbers tell the story as well as anybody's. In 2009 the world economy contracted by 1.1%, the worst performance since the second world war. That was split between a 3.4% drop for advanced economies and a 1.7% rise for the emerging ones.

That gap will be preserved, more or less, during the upturn, so the IMF expects global growth of 3.1% this year, split between a modest 1.3% expansion in advanced countries and 5.1% growth in the emerging world.

Just as advanced economies were hit harder by the financial crisis, so they will be slower to recover. Emerging economies are much better placed. Gerard Lyons of Standard Chartered describes "an arc of growth from China to India and then on to Africa". Stephen King of HSBC sees the crisis as the "tipping point", which has made the shift of economic power from west to east irreversible.

One way of looking at this is by comparing the performance of the "E7" - China, India, Brazil, Russia, Mexico, Indonesia and Turkey - with that of the more familiar G7 (America, Japan, Germany, Britain, France, Italy and Canada).

We start this decade with the combined gross domestic product of the G7 comfortably ahead of that of the E7. By the end of it, according to John Hawksworth of Price Waterhouse Coopers, the E7 will be in the ascendancy.

"The shift in global economic power is not just reflected in GDP," he points out. "The G7 has already given way to the G20 as the key forum for global economic decision-making, while it was the G2 [America and China] that took the lead in the Copenhagen climate-change talks."

That is the big story, for this year and many years to come. We should not, however, confuse the relative and the absolute. Britain was displaced by America as the world's leading economy long ago but that did not stop our living standards continuing to rise, and at an accelerating pace.

What about the shorter term? There are several questions. Will there be a recovery? Will Britain be flung into crisis by record levels of public borrowing? And, related to this, will those problems be compounded by an indecisive general election outcome? Where will interest rates end the year?

The latest GDP figures did not quite show it, but most of the components were consistent with recovery having started some months ago, as are the unemployment figures. Forecasters usually make the mistake of erring on the side of caution in the early stages of recovery.

Even so, taking the official figures at face value, they make it hard to have a strong number for growth in 2010. If GDP has risen by 0.4% in the final quarter of 2009, and then increases at the same rate in the first two quarters of this year, that is consistent with 2010 growth of about 1%.

Could we get no growth at all? After all, the talk is of at least as many pay freezes this year as last, Vat has just gone back up and higher taxes are on the horizon. The answer is yes, though the latest figures suggested Britain's households have done a lot of the rebalancing they need to do and incomes have been rising quite strongly.

David Fuller's view The speed with which China and India-led emerging (progressing) economies are growing in power and influence relative to the West will come as no surprise to veteran subscribers. It has been a key Fullermoney theme throughout this decade. The process, hastened by globalisation, became inevitable once the big population economies abandoned their moribund economic systems and embraced capitalism.

Assuming equally effective economic policies, plus approximately equal opportunities and emphasis on education, how can countries and economic regions of 300 million plus people (USA and Euroland), not lose ground to emerging powerhouses with populations in excess of 1.2 billion each (China and India)? Similarly, once globalisation and capitalism embrace most of the world, as they now do, how can a developed region (OECD) with a total population of slightly more than 1 bullion, out-produce and out-consume 5.5 billion people energised by their improved opportunities and ambitions?

Of course I simplify; considerable risks accompany any economic transformation and as we have often said at Fullermoney: Governance is everything. But guess what? An entitlement mentality has proved to be no match for strategic planning. The West's derivatives boffins and paper shufflers bet the bank - in other words, other people's money - and lost. Consequently, our western economies have actually been regressing, which has tilted the power and prosperity axis further towards progressing economies. They have an additional advantage in not having to reinvent the wheel. The wiser leaders in emerging markets have a considerable knowledge of western economic policies. Consequently, they are in a better position to adopt and adapt what works, and avoid much of the folly.


What does this mean for investors?

Subject to governance, the better long-term opportunities in stock markets and currencies will be in emerging markets more often than not. However, emerging markets will not uncouple because we live in a global economy. Consequently the Wall Street leash effect, so often mentioned in this service, will remain hugely influential. Also, emerging markets will continue to be regarded as "riskier assets", ensuring that they remain high-beta.

I maintain that this perception of risk is dated, but it has a monetary and liquidity component. Western investors and not least investment managers will plough funds into emerging markets during the upswings, in pursuit of better returns. Thin markets, at least relative to Wall Street, will boost returns in the good times but are inevitably a double-edged sword. During bear markets investors will sell their best profits, because they can, and investment managers will move quickly to hedge against self-feeding liquidation in comparatively thin markets.

Consequently we should remember the apt adage: "Buy when there is blood in the streets." October 2008 to March 2009 provided the most recent great opportunity, but there were plenty of others that you can recall or identify if you know your market history. Conversely, we should consider lightening when the crowd is euphoric, aggressively extrapolating trends and wishfully talking about uncoupling.

Since bear markets often crash to lows, climactic panics are easier to identify than market tops, which may occur on a staggered basis and usually include a degree of market churning. Also, while buying during a selling panic and selling long positions into a euphoric environment (buy low, sell high) is the most sensible thing that we can do in markets, it is counterintuitive and therefore not easy.

Consequently we need to develop a contrarian way of thinking, tested against trend consistency characteristics revealed by price charts. Without the charts - weekly are best for medium-term discipline - we will risk being subjective rather than objective contrarians. Remember, the crowd will be right for a while, therefore it is the extremes that we need to identify, from euphoria to panic.

To think objectively when interpreting price charts, try to avoid the siren calls of market prophets. In a bull market, which you suspect may be in its latter stages not least because the trend has become less consistent, be wary of the seductive optimism of pundits, who in the manner of drug dealers, will always promise another new high. Instead, for perspective in addition to what your charts provide, listen to the value analysts who fret about the market being too high. In terms of noise generated, they will be a minority group and in a good (bubbly) bull market they will most likely turn bearish way too soon, often at the temporary cost of their reputations. Nevertheless their views are likely to be more objective than the holy fools who mistake a bull market for brains. So listen to the Cassandras when the bull market is raging, but with perspective filtered by your factual assessment of trend consistency, while it is maintained. If you are lucky, some of the trends in which you are participating will accelerate higher, forewarning of a major correction, if not the actual market peak.

Similarly, when the bear market is raging, beware the trend extrapolators who may be talking their short book. Instead, listen for the experienced value analysts who will become cautiously optimist as the low is approached. Use your price charts to identify climactic activity, not least dramatic downward acceleration which is an ending signal.

The beginning of the end of the bear market is also the beginning of the bottoming out and base building process for the next bull market. Conversely, the topping out process which ends the bull market is the beginning of the next bear market.

Where are we in the stock market cycle today?

Every subscriber will have their own perceptions, but if not, I encourage you to develop them.

Meanwhile, as I see it, most stock market indices, are resuming their upward trends following several months of ranging consolidation towards their rising 200-day moving averages. For evidence, I provide the DJ World Stock Index and the MSCI Emerging Markets Index (a day behind in terms of updating). Technically, this action is very bullish provided upward breaks are maintained, and crucially, so are the progressions of higher reaction lows during subsequent reactions. The crowd is cautiously optimistic rather than euphoric. Most value analysts concur that on average, while equities are no longer cheap, they are not particularly expensive today. Crucially, monetary policy remains very accommodative.