What is the average return of the emerging markets?
We continue to see GDP growth around 4.0% for global emerging markets in 2024, led by growth around 5.0% for emerging Asia. We anticipate growth in a range of 2.0%–2.5% for emerging Europe and Latin America, though our recent U.S. growth upgrade could signal positive implications for Mexico and all of Latin America.
We continue to see GDP growth around 4.0% for global emerging markets in 2024, led by growth around 5.0% for emerging Asia. We anticipate growth in a range of 2.0%–2.5% for emerging Europe and Latin America, though our recent U.S. growth upgrade could signal positive implications for Mexico and all of Latin America.
The average economic growth rate has been a full percentage point higher for emerging markets - 5.9% annually over the last 20 years compared to 4.9% for developed markets.
| Year | Return |
|---|---|
| 2021 | 5.93% |
| 2020 | 8.66% |
| 2019 | 21.17% |
| 2018 | -10.17% |
MSCI Emerging Markets Index Performance
As of December 2021, the MSC Emerging Markets Index recorded a one-year net return of -2.54%, a five-year annualized return of 9.87%, and a 10-year annualized return of 5.49%. Since its inception on Dec. 29, 2000, it has returned an annualized 8.97%.
We expect growth in EMs will diverge significantly in 2024, moderating for many countries that outperformed in 2023 and slightly increasing for some countries that underperformed.
When basic caution is exercised, the rewards of investing in an emerging market can outweigh the risks. Despite their volatility, the most growth and the highest-returning stocks are going to be found in the fastest-growing economies.
Of course, EM equity markets have delivered disappointing returns over the last 10 years. But rewind further to the first decade of the 21st century, and EM stocks outperformed the S&P 500 by a wide margin. Over the longer run since 2001, EM stocks have outpaced the MSCI World.
If a US recession is on the way would only make more of a case for greater diversification in global portfolios – a positive for emerging markets. A recession would entail lower inflation and, as a result, lower US interest rates.
In short, a review of the three standard approaches to EM allocation suggest global equity investors should allocate somewhere in the range of 13% to 39% to EM. Source: FactSet, MSCI, MSIM calculations.
Do emerging markets outperform?
As of early June, the MSCI Emerging Markets Value Index had outperformed the Emerging Markets Growth Index for almost seven consecutive quarters and by a total of some 30% since the fourth quarter of 2020 (Exhibit 1). The last time this happened, in 2001, value stocks outperformed growth stocks for nine years.
Vanguard's active fixed income team believes emerging markets (EM) bonds could outperform much of the rest of the fixed income market in 2024 because of the likelihood of declining global interest rates, the current yield premium over U.S. investment-grade bonds, and a longer duration profile than U.S. high yield.
Emerging market economies can offer greater returns to investors due to their rapid growth. They also offer greater exposure to some inherent risks due to their status. Over time, emerging markets typically adopt reforms seen in developed markets.
| Country | P/E▾ | |
|---|---|---|
| All World | VT | 18.76 |
| Developed ex-US | EFA | 14.67 |
| Emerging Markets | EEM | 13.37 |
- Vanguard FTSE Emerging Markets ETF (VWO).
- iShares Core MSCI Emerging Markets ETF (IEMG).
- Schwab Emerging Markets Equity ETF (SCHE).
- SPDR Portfolio Emerging Markets ETF (SPEM).
| Years Averaged (as of end of February 2024) | Stock Market Average Return per Year (Dividends Reinvested) | Average Return with Dividends Reinvested & Inflation Adjusted |
|---|---|---|
| 30 Years | 10.222% | 7.495% |
| 20 Years | 9.74% | 6.96% |
| 10 Years | 12.681% | 9.555% |
| 5 Years | 14.543% | 9.879% |
Despite the improving economic outlook and decent returns of late in most equity markets, emerging markets, and particularly China, re- main much unloved. Given that emerging markets are trading at 11.4x P/E for 2024, with earnings growth at 18%, the risk-return profile for this asset class appears favourable.
- eCommerce.
- Online education.
- The health and fitness industry.
- The home improvement industry.
- The pet care industry.
- Travel and tourism.
- Invest in your future.
- Get a loan and start your business.
Emerging markets are riskier than developed markets because they can experience political instability, illiquidity and currency volatility, and a high level of state-owned or state-run enterprise and are not suitable for all investors. As with all investing, your capital is at risk.
Lack of Liquidity
Emerging markets are generally less liquid than those found in developed economies. This market imperfection results in higher broker fees and an increased level of price uncertainty.
What is the best way to invest in emerging markets?
Investing in individual emerging markets stocks is difficult for the average investor, so mutual funds and ETFs are often the most effective way to do it. Look for funds with high assets under management.
With emerging markets, it's a good idea to consider a fund or exchange-traded fund (ETF) to gain broad exposure rather than picking one or two developing economies. It's always wise to talk to a regulated financial adviser before investing to develop an investment strategy and ensure a diversified portfolio.
| GDP PPP rankings | 2016 rankings | 2030 rankings |
|---|---|---|
| 1 | China | 38008 |
| 2 | United States | 23475 |
| 3 | India | 19511 |
| 4 | Japan | 5606 |
By sector, industrials, technology, financial services, and consumer defensive stocks look most overvalued. The most undervalued sectors heading into the second quarter are real estate, utilities, and communication services.
The 10 Big Emerging Markets (BEM) economies are (alphabetically ordered): Argentina, Brazil, China, India, Indonesia, Mexico, Poland, South Africa, South Korea and Turkey. Egypt, Iran, Nigeria, Pakistan, Russia, Saudi Arabia, Taiwan, and Thailand are other major emerging markets.
