It wasn't so long ago that emerging markets were drumming up all sorts of excitement on Wall Street. Growth in developing countries like China was to be a boon not just for U.S. investors, but the global economy at large as well. Hopes were high that the nations of the world would collectively prosper, by keeping the terms of global trade amicable.

But according to Knight Capital's Mark Lapolla, the days of kumbaya are gone -- today, domestic interests trump global harmony.

As Lapolla sees it, government policy, economic stability and resources are the lynchpins of global trade. And none of the above are currently in a conducive state. We already know that China will do whatever it takes to keep its outsized growth in check, even if it's to our and other nations' detriment.

And let's face it, the Fed's second round of quantitative easing wasn't initiated to make things any easier for anyone but the U.S.

Of course, that didn't turn out quite as planned: Despite the U.S. government's stimulus efforts, stocks are down, interest rates are up, and the commodity sector is weak, circumstances that could set off a global shockwave of inflation.

Adding to this heady mix is the financial mess in Ireland, with potential repercussions reaching far beyond the EU's borders.

Now that the world is done playing nice, Lapolla tells us to expect "a shockingly powerful rally in the dollar, broad-based weakness across the commodities sector." And we'll really see it in emerging markets, where they'll likely be a "dramatic widening" of spreads and "what could prove to be a stampede of hot fund" outflow.

So, which emerging market stocks are expected to see the biggest declines? For an answer, we looked to see what short-sellers are up to. Short-sellers essentially bet on their stocks to lose, selling high in order to buy low.

A short-seller borrows shares from other investors, and then sells them on the open market. Eventually, he closes the short by buying back the same number of shares he initially borrowed. So if he can buy back the stock at a lower price, he nets a profit off the difference.

Short-sellers take on unlimited risk because they (theoretically) have unlimited downside -- if the stock keeps rising, they keep losing. So out of necessity, short-sellers tend to be a bit savvier than your average investor. (Click here to access free, interactive tools to analyze these ideas.)

Here's a list of seven emerging market stocks being targeted by short-sellers. Short trends data sourced from AOL Money. The list has been sorted by the change in the short ratio, which measures how many days of average volume are needed to cover all short positions.

Company

Industry

Short Ratio Trends (7/30-10/29)

Shares Shorted (7/30-10/29)

Cninsure (Nasdaq: CISG)

Insurance Brokers (China)

Increased from 2.4 days to 7.6 days

Increased from 1.35M shares to 3.23M shares

China Security & Surveillance Technology (NYSE: CSR)

Security & Protection Services (China)

Increased from 2.8 days to 5.6 days

Increased from 3.73M shares to 6.90M shares

Ctrip.com International Ltd. (Nasdaq: CTRP)

Consumer Services (China)

Increased from 1.2 days to 3.6 days

Increased from 3.93M shares to 5.64M shares

Deer Consumer Products (Nasdaq: DEER)

Home Furnishings & Fixtures (China)

Increased from 4 days to 7.2 days

Increased from 1.13M shares to 2.18M shares

Gafisa S.A. (NYSE: GFA)

Residential Construction (Brazil)

Increased from 2.1 days to 3.9 days

Increased from 5.31M shares to 9.68M shares

hiSoft Technology International Ltd. (Nasdaq: HSFT)

Business Software & Services (China)

Increased from 0.1 days to 3.5 days

Increased from 15989 shares to 464068 shares

Companhia Siderurgica Nacional (NYSE: SID)

Steel & Iron (Brazil)

Increased from 1.9 days to 3.2 days

Increased from 10.16M shares to 13.84M shares

Interactive Chart: Press Play to see how analyst ratings have changed for all the stocks mentioned above.


 

Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.

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