Economic growth and EM equities
Does growth matter for emerging market investing?
Whether economic growth drives equity market returns is a divisive question. We examine equity market returns across emerging markets (EM) over the past two decades and find that growth might matter – certainly more than sceptics often claim.
But still, before chasing economic growth by investing in country indices, investors should ask:
- Are growth expectations already too optimistic or fully priced in?
- Do the key index constituents genuinely reflect the broader economy, including the sectors which are driving economic growth?
- Are profitability, governance and capital discipline strong?
- Is the regulatory backdrop supportive?
- Would a more active approach be more effective, given the index limitations?