Why emerging markets are no returns lay-up, as explained in a nicely-timed Jason Zweig column in today’s WSJ:
[Investors have poured] $10.6 billion into emerging-markets mutual funds so far this year, or more than 34 times the total they added to U.S. stock funds. The iShares MSCI Emerging Markets Index Fund is now the fourth-biggest of all exchange-traded funds, with $30.8 billion in assets.
…Unfortunately, high economic growth doesn’t ensure high stock returns. "People have hopelessly got the wrong end of the story," warns Elroy Dimson of London Business School, who is one of the world’s leading authorities on financial markets.
Based on decades of data from 53 countries, Prof. Dimson has found that the economies with the highest growth produce the lowest stock returns — by an immense margin. Stocks in countries with the highest economic growth have earned an annual average return of 6%; those in the slowest-growing nations have gained an average of 12% annually. [Emphasis mine]
There is a useful discussion of the Dimson data here.