Emerging stock market factbook
Investors are able to access historical performance results of securities that belong to developed markets. In todays market scenario it is very essential to have information on historical rate of returns for securities in emerging markets. One of the leading finance corporations has taken efforts to gather this valuable information. The information covered is for one third of the total number of emerging markets. And the data available is from the year 1975.
The data belongs to some of the famous countries like Brazil, Mexico and India. Similar data for a few more emerging markets like China or South Africa is available for the last 8 to 10 years duration. The data reflects the information about how emerging markets behave under unexpected events. The data also explains the interaction pattern amongst the emerging markets and finally correlates the same with developed markets.
The data for a 20 years period from 1975 to 1995 indicates the performance of stocks in emerging markets was lagging behind the developed market of U.S. Stocks. Emerging markets performed well in comparison with treasury bills and U.S. inflation. Emerging market stocks experienced greater variability of returns compared to U.S. stocks. The variation was in excess to the value of 0.5 to 1.2 percent. The data shows that high risk stocks of developed markets have given better returns than emerging market stocks. This information is opposite to the belief that higher risk emerging market stocks provide higher rates of return. One of the table information shows that the performance of first ten years is entirely different than the next ten year period.
Performance for 1985 to 1995
Structural changes occurred twice in the market for the above period. The emerging stock markets outperformed compared to the developed stock market. Emerging stock market earned 1.5 percent compounded monthly return, whereas the return from developed stock market was much lower than 1.5 %. The increased rate of return resulted in growth of the wealth index. The growth was six times its original value. However the variability factor in terms of return was controlled.
Performance for1990-95
For the above period emerging stock market returns were less in the range of 0.1 to 0.3 percent than returns of developed stock markets. The volatility observed in the emerging stock market prices was also higher to the value of minimum 0.8 to maximum 2.3 percent value of developed stock market prices.
The underperformance of emerging market assets in the overall time period is largely due to the poor performance of 1980-85 periods. During the said periods the emerging markets were very small in nature plus the methods followed were also of the old kind. The other responsible factor was the world recession period of 1980-82.During this recession the oil prices and interest rates also rose abnormally. Those events caused debt crisis in Latin America. The four year period of 1980-84 was literally as good as a lost period for emerging markets.
From 1985 to 1995, the stocks in emerging markets performed relatively better. The absolute returns on calculated risk basis also fared well. The present picture of improved emerging markets created a little doubt in the minds of investors. The important point whether investors will be able to earn high rate of returns and reduce portfolio risk to minimum, is to be seen in the coming days.
Other Articles
