Emerging markets cause a rethink
Emerging market stocks are dogs. At least that’s what a lot of investors have come to believe in recent years, but their total shareholder returns over the past year suggests just the opposite is true.
Led by a resurgence in Chinese stocks, eight of the top 10 equity indexes in the world were located in developing markets in 2014, and Asia’s top benchmark, MSCI Asia- Pacific Index, has continued its recent run this year. It is now up more than eight per cent in 2015.
“Once again, emerging markets delivered the highest total shareholder return, taking the top six spots and eight out of the top 10 market spots,” said Boston Consulting Group in its latest research of global equity markets.
BCG analyzed more than 6,000 companies across 44 markets as part of its 2015 Value Creators report, which will be published in full later this spring.
China delivered the highest annual return of all the countries in the study, gaining 67 per cent in combined capital appreciation and dividends paid last year.
Argentina was the next best, followed by India, Indonesia, Turkey and the Philippines, while the top performing country in the devel- oped world, but seventh overall, was Denmark, which gained 23 per cent. Canada gave investors a 12 per cent return.
China’s massive rebound from being one of the worst performing markets in 2013 belies the fact that many emerging markets have performed well over the past four years.
Dubai, South Africa, Argentina and the Philippines, for example, have all produced total returns greater than the global average over that time period.
Even so, the BCG results are somewhat surprising given the myriad challenges that emerging markets have faced so far this decade, including slower growth in China and the euro area, lower commodity prices, prospects for higher U. S. yields and a stronger greenback.
“The backdrop for EM economies has grown tougher since 2011 and will likely remain so over the next few years,” said Barclays analysts in its annual gilt study.
Nonetheless, they believe allocations to emerging- market assets make sense even if returns are likely to be much lower than in previous boom years.
In particular, they said expected structural changes in China and India should help equity markets in those countries to continue attracting investor attention.