The emerging markets (EM) asset class has been especially disappointing for investors in the past few years, as measured by the MSCI Emerging Markets Index. However, last week EM pulled ahead of the performance of the S&P 500 Index for 2014. Might this mark the beginning of the turn for EM relative performance? We think it may. A little history may help illustrate why.
EM investors in the 1990s were used to the huge up-and-down swings of the EM asset class as EM countries in Asia and Latin America were prone to financial crises — from the Mexican “peso crisis” in 1994, to the Asian “contagion” of 1997 – 1998, to the Argentine debt default of 2001. But from 2002 – 2007, the BRIC era (named for a 2001 paper on the emerging importance of the economies of Brazil, Russia, India, and China), EM stocks experienced a decade of spectacular performance resulting from a few key drivers.