The Qualitative Bear Case for Emerging Markets Equities

Abstract

This essay sets out four fundamental reasons why emerging market equities may not continue to produce special returns and why dark clouds may be gathering in some of the most prominent of the emerging countries. First, whether in societies or in companies, rapid growth doesn’t necessarily translate into higher equity returns. Second, it is possible that the development model for emerging societies is breaking down. Third, in order to “emerge” into a developed economy, it is necessary for emerging countries to make social and political progress in addition to economic progress, something few emerging economies seem to be doing successfully. Finally, looking forward, the emerging markets are likely to face much tougher competition from both developed and frontier markets.