For the past five years, emerging markets have returned only about 3 percent per year, compared to the US stock market’s 14 percent per year over the same time period. Given the higher risk of emerging market companies compared to those of the US, many have begun to wonder if it is even worth their inclusion in a diversified portfolio.
However, despite lacklustre returns over the past five years it is important to remember that these economies are still growing at a faster pace than the US. In fact, according to Haver analytics, emerging markets are expected to account for more than three-quarters of global growth in 2017, with China alone representing 33% of global growth. These are impressive figures, and it is important to remember that even with the US growing at a healthy pace, emerging markets are still growing much more quickly.
Investors who have stayed invested in emerging markets were rewarded this year, with emerging markets growing over 17% so far YTD, compared with the S&P 500 returns of 7.5% (returns through May 12th per Morningstar). This type of outperformance is a good reminder that staying diversified allows the prudent investor to benefit from these smaller, faster-growing economies.
McVey, Henry. “Outlook for 2017: Paradigm Shift” KKR Global Perspectives. http://www.kkr.com/global-perspectives/publications/outlook-2017-paradigm-shift