Early last month, just after the downbeat IMF/World Bank meetings in Washington, a beleaguered group of once pre-eminent investors gathered at the Roosevelt Hotel in New York to discuss the prospects for their business. In such bleak days, these men and women, managers of some of the best-known funds invested in emerging-market debt and equity, had one overriding question to confront. Can emerging markets any longer be considered a viable asset class? Euromoney, which organized the conference, listened eagerly to the debate.
The essential obstacle to believing in any swift recovery for emerging-market investing is mounting evidence that in bull markets for world equities emerging countries don't outperform developed markets. And in bear markets they considerably underperform.
Richard Watt, managing director at BEA Associates, acknowledged that "there have only been a couple of years when the bottom 10 performing world stock markets have not mostly comprised emerging markets, and only a couple of years when the top seven world equity markets have included many emerging markets." It's not just the recent losses that hurt: it's the knowledge that, even before the Asian crash in 1997, investors would have enjoyed better results buying US stocks and earning returns of 3% per month.