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The rise and fall of BlackBerry Ltd. and Nortel Networks Corp. give Canadian investors a unique insight into what happens when foreign investment inflows go into reverse.

For Canadian investors, the question now is whether the continuing mad scramble to get assets out of emerging markets is analogous to the Nortel boom-bust scenario, or just a bump in the road for emerging markets economic development. The answer to this question will determine profit growth for Canadian resource companies, who are dependent on emerging-markets demand.

In a research report released Friday, Bank of America strategist Michael Hartnett provided a compelling argument that the selling in emerging markets assets is now overdone:

"Massive $60-billion outflows from EM equity & bond funds over past three months = capitulation. Note EM equities outperformed after similar redemptions July '04, August '06 and Sept. '08. Tactical bounce in EM equities continues …"

The careful use of the word "tactical" is instructive. It suggests a temporary, tradable, reflex rally rather than a sustainable trend.

Local investors in Brazil, India, Turkey, Indonesia and Malaysia are likely feeling very much like Canadian investors when the stocks of Nortel and Blackberry deflated.

In the runup to the stock price peaks for Nortel and Blackberry, foreign investment helped push the stock to levels where they dominated S&P/TSX index performance. When the money pulled out, it took index performance with it.

When a dominant U.S. stock rolls over, the effects on the overall market are much different. The recent 40-per-cent decline in Apple stock, for instance, didn't devastate U.S. indexes the way Nortel did the TSX. The Apple selloff undoubtedly affected index values, much of the proceeds from investor selling were reinvested in other U.S. stocks.

If, for instance, investors sold Apple and used the money to buy Goldman Sachs Group Inc., Pfizer Inc. or another American behemoth, the effects on overall Nasdaq and S&P 500 performance would be muted. Apple's slide would push the index down, but the buying in the others would provide support.

When foreign investment leaves a Canadian or emerging market asset, it's going back home, not to another investment in that country. The effects on the benchmark indexes in those countries are much more negative, and usually long term.

I'm skeptical about emerging markets asset performance because I don't expect the foreign investment pulled from India, Brazil and other countries to return any time soon. In most cases, local investment is not sufficient to push markets back to previous peaks (China could be an exception, where there's no shortage of money).

Continued weakness in emerging markets implies Canadian equity market softness – I've discussed the close correlation between the MSCI Emerging Markets (in US$) versus the S&P/TSX composite a few times. So, Canadians should invest somewhat defensively until it's clear that foreign investment has returned to the developing world. We may be waiting a while.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here to read more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.