All markets have disappointed of late, but especially the emerging markets. Even aside from the recent global sell-off, they have handed once enthusiastic investors sub-par performance for more than a year now. Moreover, these economies have displayed a vulnerability to the ills— especially inflation—that investors had thought they were immune to. Some commentators and strategists point to such signs and declare an end to emerging markets as preferred investments. They recommend that investors rethink their allocations. Such warnings, though understandable, almost certainly go too far. No doubt emerging markets in coming years will fall short of their tremendous gains of the past 10 to 20 years, but ample reason remains to expect better performance there than in developed markets and, consequently, a place in investor portfolios.
Emerging market equities certainly had given investors a great ride for a long time. During the 10-year stretch to the close of 2010, these investments as a group returned almost 18% a year, according to the MSCI Index. That's a 17.5 percentage point annual premium over the S&P 500.
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