Do Emerging Markets Beat Developed Markets?
Countries with stock markets are classified at frontier, emerging (EM), and developed (DM), in order from least wealthy and developed to most. Of course, a natural question would be “Which markets tend to perform better?”
Let’s look at the most recently available data at of the time of this analysis:
|Wght’d Avg Correlation||-0.0737|
We looked at 42 six-month periods. The level of development had a negative correlation with performance 24 times, or 57% of the time. That amounts to a negative correlation of 7%. That is to say, EM tends to outperform DM the majority of the time, but it’s not a strong majority.
But it does add up to a significant amount of overperformance. Let’s imagine that we had created an investment made up of two buckets. One is filled up with equal amounts of each EM country’s stock index, and the other is filled with equal shares of each of the DM countries. Let’s say we then tracked six-month performance, and then averaged together the performances for all of the periods in our data set. Here’s the average performance for the two categories:
The 0 group is emerging, and the 1 group is developed. The average difference in returns is 1.7% for each six-month period, which adds up to almost a 3.5% difference per year. That’s substantial. So, even though the EM edge is not reliably present, when it is present, it adds a significant amount of performance.
Originally published on Townhall Finance.
Jerry Bowyer is a Forbes contributor, contributing editor of AffluentInvestor.com, and Senior Fellow in Business Economics at The Center for Cultural Leadership.
Jerry has compiled an impressive record as a leading thinker in finance and economics. He worked as an auditor and a tax consultant with Arthur Anderson, as Vice President of the Beechwood Company which is the family office associated with Federated Investors, and has consulted in various privatization efforts for Allegheny County, Pennsylvania. He founded the influential economic think tank, the Allegheny Institute, and has lectured extensively at universities, businesses and civic groups.
Jerry has been a member of three investment committees, among which is Benchmark Financial, Pittsburgh’s largest financial services firm. Jerry had been a regular commentator on Fox Business News and Fox News. He was formerly a CNBC Contributor, has guest-hosted “The Kudlow Report”, and has written for CNBC.com, National Review Online, and The Wall Street Journal, as well as many other publications. He is the author of The Bush Boom and more recently The Free Market Capitalist’s Survival Guide, published by HarperCollins. Jerry is the President of Bowyer Research.
Jerry consulted extensively with the Bush White House on matters pertaining to the recent economic crisis. He has been quoted in the New York Times, The Wall Street Journal, Forbes Magazine, The International Herald Tribune and various local newspapers. He has been a contributing editor of National Review Online, The New York Sun and Townhall Magazine. Jerry has hosted daily radio and TV programs and was one of the founding members of WQED’s On-Q Friday Roundtable. He has guest-hosted the Bill Bennett radio program as well as radio programs in Chicago, Dallas and Los Angeles.
Jerry is the former host of WorldView, a nationally syndicated Sunday-morning political talk show created on the model of Meet The Press. On WorldView, Jerry interviewed distinguished guests including the Vice President, Treasury Secretary, HUD Secretary, former Secretary of Sate Condoleezza Rice, former Presidential Advisor Carl Rove, former Attorney General Edwin Meese and publisher Steve Forbes.
Jerry has taught social ethics at Ottawa Theological Hall, public policy at Saint Vincent’s College, and guest lectured at Carnegie Mellon’s graduate Heinz School of Public Policy. In 1997 Jerry gave the commencement address at his alma mater, Robert Morris University. He was the youngest speaker in the history of the school, and the school received more requests for transcripts of Jerry’s speech than at any other time in its 120-year history.
Jerry lives in Pennsylvania with his wife, Susan, and the youngest three of their seven children.
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