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What happened to the glorious 2013 rally?

Question: "What is the difference between the global economy on the last day of 2013 and the first day of 2014?" Answer: "Absolutely nothing."

Yet if you look at the global financial markets, you'd think that something dramatic had happened to send sentiment diving off a cliff after January 1. What happened to the glorious 2013 rally, that was accompanied by a supposed great rotation back into equities, away from the sovereign fixed income market that was supposed be in decline for the rest of the decade?

Alex Wong | Getty Images

If we strip back the layers on the onion, it's very clear that all the reasons why we are supposedly selling off now were in place for pretty much all of 2013. And it's not even as if we ignored them.

(Read more: January proves to be worst month for US stocks in more than ayear)

I've lost count of how many times I put up the 12-month comparison chart of the MSCI Emerging market versus the S&P 500 last year.It showed a huge outperformance for the U.S. benchmark throughout. A huge outperformance that was based on the fact that no-one really had much faith in the broader emerging markets, and even less faith in the governments of former darlings like Brazil and India to reign in current account deficits and carry out much-needed structural reforms. Two countries which have big elections this year and even bigger domestic economic problems.

Hmm, say the emerging world policy makers. We need a scapegoat. How about the Americans again?

Great idea. It's that dastardly tapering that's to blame.

(Read more: India's Rajan intough spot as stagflation risk emerges)

When I hear the much respected Reserve Bank of India Governor Raghuram Rajan bemoaning the lack of coordination globally for the wave of volatility hitting emerging markets (EM) I think a very large pinch of salt is needed. What does he expect from the Americans, whose economy is apparently growing at 3.2 percent, with a headline unemployment rate of circa 7 percent? Yes, coordination from the G-20 and other international bodies would be nice, but it's a fantasy.

In fact the last time we got global coordination was right at the peak of the financial crisis when $1.1 trillion was promised to pump up the system. Since then it's been every man for himself as mainland Europe, China and the U.S. see their economic cycles continue to diverge.

Anyway, weren't the EM finance ministers banging on about the hot money ills of the Federal Reserve's monetary easing? Well now it's being slowly withdrawn, they're complaining again. Cake and eat it anyone?

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Hedge funds are getting pretty bearish on EM, according to Societe Generale's Benoit Anne. He reckons there is a danger though of short positions getting overstretched.The next phase though is the interesting one, in that if EM turmoil starts hitting developed economy fundamentals, rather than just financial markets, then stronger policy responses will inevitably follow.

Amid all this volatility and sentiment swings,it's worth reminding ourselves that in Europe we still have some pretty atrocious economic fundamentals. Yes, we've seen a slight improvement in the data but if nothing else, the EM crisis-in-confidence should teach us not to be smug, and that it could be us next.

Steve Sedgwick is an anchor for CNBC's SquawkBox Europe


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