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Chakrabarti says the dollar has appreciated against almost every currency in the world as worried investors seek safety in U.S. Treasury bonds. "Once people think that the crisis is over, there will be a reversal. This may bring down the dollar a little bit and the rupee may appreciate to around 45 or so. I don't see the rupee falling much further than where it is now."

The Sensex -- the Bombay Stock Exchange Sensitive Index -- may increase slightly in the coming year. "The market is expected to be flat, between 9,500 and 10,500, and could even come down below the 9,000 mark before the general elections" due in the next few months, says Kumar. Chakrabarti predicts the market will move sideways. "While the Sensex may go up slightly, I don't see any sustained rise. If we manage to reach 12,000 by December 2009, it means we are doing wonderfully well."

China: How To Support Future Growth

China, another once-hot emerging market, is also likely to face setbacks this year. Just a year ago, China's central government cited inflation as its biggest economic concern and announced it would shift monetary policy to prevent the economy from overheating. Now, the hope that China would continue to be a rising economic star is fading and the resilience of China's economy will be tested.

A December report released by People's University of China in Beijing found that the current downward cycle signals the collapse of the nation's growth model based on U.S. consumption along with Chinese savings and other exports. While China is widely expected to grow at 8% next year, the People's University report predicted the economy will suffer from declining global demand and less ability to drive the economy forward with investment. Meanwhile, China's inelastic demand and supply structure will make it hard for the nation to react to economic change.

Even before the Wall Street financial crisis hit, China's export-oriented economy was under pressure. The international community was pressing China to raise the value of its currency. In addition, thousands of factories in south China were shutting down due to tighter regulation of product quality and labor and environmental standards, signaling that deep change in the economy is coming.

Andy Xie, an independent economist, says the government's massive stimulus package of RMB 4 trillion ($586 billion) announced in November will bring some improvement to the economy in the second half of 2009. However, the plan does not address a key issue: The Chinese people cannot afford to buy the goods they produce. Xie suggests an effective approach to improve the economy would be to subsidize consumption and home purchases.

"It's very possible that China will expand policies in this regard and the economy will be better in the second half of 2009," he says. "The stock market might have a rebound by then, but it will only be a rebound, not a real bull market. The key issue is, what shall we rely on to support our future growth?"

At a December central government meeting on the economy in Beijing, China's top leaders placed a priority on changing the nation's growth engine. Wu Jing Lian, a prominent economist and member of the State Council's Research Center, told journalists after the meeting that China's existing growth model leads it to suffer when the U.S. economy runs into trouble. "It makes us believe that ... we have to focus on the structural adjustment and growth model reform, which will be the only way for us to survive."