The certainty of uncertainty

EMs

A year ago, I edited a note that cautioned investors about the then-common wisdom that they should be overweight in emerging markets equities.

Many investors believed (and continue to believe) that since emerging markets offered high relative GDP growth, that would result in attractive returns. We argued the correlation between economic growth and equity performance was essentially zero, especially over short time horizons. While economic growth in emerging markets outpaced developed markets in 2011, emerging market equities were dismal. According to Bloomberg, China and India generated year-on-year real GDP growth of 9.1% and 8.5%, respectively.  However, the Shanghai Index fell 20% and its Bombay counterpart fell 24% in lo...