The three forces pinching emerging market equity returns | Financial Times

The three forces pinching emerging market equity returns | Financial Times:

Emerging market equities are behaving very oddly this year, but anyone betting on a bout of mean reversion could instead end up with burnt fingers.

The MSCI World index of developed market equities has enjoyed a splendid 2019, chalking up a 19 per cent gain in total return terms, despite a backdrop of doom and gloom over everything from trade wars to slowing global growth.

Despite this, the equivalent index for emerging market stocks — generally perceived as a “high beta” asset class that should excel in risk-on environments — has returned just over 10 per cent. If this pattern persists for the rest of the year, it would be only the third time since the Asian financial crises of the 1990s that EM has lagged behind DM in rising markets — an example last seen in 2013 and 2014 when the Federal Reserve provoked the so-called “taper tantrum”, in which US Treasury yields surged on news that loose monetary policy would be gradually tightened.