Equity Performance in Emerging and Developed Economies Feb 2011

One of the global investment themes that has become evident in early 2011 is re-balancing of global financial flows in favour of developed economies, after a stunning outperformance by emerging markets in 2010. In 2010 emerging market equities rose by 16.4% (index return, in Dollars) vs 10.4% by developed markets (index return, in Dollars). In early 2011 this performance gap has more than reversed.

Up until 10 February, the MSCI Developed Market equity index was up 3.1% (in Dollars), while the MSCI Emerging Market equity index was down a substantial 5.4% (in Dollars). This divergence does not imply that the macro-economic story for emerging markets has suddenly changed, rather it reflects world equity markets adjusting to an improved macro-economic story out of developed markets (mainly the US) combined with a concern about market and currency valuations in emerging markets. In addition, at the margin, the current uncertainty in Egypt coupled with the raising of interest rates in a number of emerging markets, including China, may also be having a negative impact on emerging market equities.

Over the longer-term, emerging market equities remain the clear winner. For example, since the beginning of 2007 emerging market equities are up a total of 19.3% (index return, in Dollars), while developed market equities are down a total of 7.3% (index return, in Dollars) partly because of the weak performance out of the Euro-area.

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