With the extension of swap lines to major emerging economies last week, and the upcoming G20 meeting next week, a stabilisation and then decline of the dollar is likely. Although there is the possibility of further dollar strength to the end of the year as hedge funds and others unwind dollar referenced contracts, we have passed the turning point. What has been supporting the dollar is a global flight to the US currency and an associated global dollar liquidity shortage.

Looking beyond immediate events, the biggest structural imbalance in the global economy remains the US current account deficit - the US has been living beyond its means, financed by emerging markets savings, for the best part of a decade. Should this change then the dollar will have to fall against emerging currencies. Local currency debt is one of the best, if not the best, hedges against structural dollar weakness. Should developed world turmoil worsen, dollar weakness is the top feature of the most bearish global scenarios. Investors wanting to insure against this risk should allocate to emerging local currency debt.

There has been little significant increase of default risk for emerging market sovereign issuers. While there are some vulnerabilities in eastern Europe, banking sectors and corporate balance sheets are remarkably strong across Latin America and Asia. Stronger productivity growth in emerging markets should provide significant support for currency appreciation over the medium-term.

This is in contrast to much more inadequately priced developed country sovereign risks. Support for the dollar depends on the rest of the world, and central banks in particular, remaining content to finance the US current account deficit. The risk is that this willingness changes suddenly.

The past few weeks have been turbulent for most asset classes. However, the decline of emerging market asset prices masks the continued strong underlying financial and economic performance of emerging markets.

The current market distress therefore provides substantial opportunities to pick up value of the kind unseen for 10 years, particularly in sovereign and corporate dollar denominated debt. Emerging equities also offer substantial value but are much riskier than discounted corporate debt coming out of distressed sellers.

In the context of significant under-weighting and prejudice against emerging markets there is, therefore, a need for rebalancing portfolios away from developed countries' asset classes.

Recent events have done little to undermine the fundamental pillars of emerging markets performance. Integration between emerging markets has allowed them to benefit from greater economic dynamism. This has been accompanied by a significant increase in openness, which has led to increasing convergence of economic policies, most notably with the integration of Central Europe into the EU. Financial independence has been achieved with a significant strengthening of the external payment position. Emerging markets' current account balances on average have swung into surplus accompanied by sharp increases in international reserves. The share of emerging markets in world GDP at market prices increased to an estimated 30 per cent in 2008. This is expected to be about 50 per cent in 15 years. As 15 years is the typical liability structure of a pension fund, they should arguably be allocating at least 35 per cent to emerging market asset classes.

Central banks have an even more pressing over-concentration of US risk which needs reducing in favour of more emerging market investment.

Recent events show that risks in industrialised countries can be substantial. As the structural conditions remain intact for emerging markets to continue to outperform industrialised countries, relative risk perception should tilt more in favour of emerging markets.

While some emerging markets will undoubtedly fare better than others, the current market environment is a good time to think about strategic asset allocation. It is a buying opportunity for emerging markets assets both as insurance against the tail risk of dollar weakness, and for extraordinary value.