What’s Really Driving the Emerging Markets Boom?

Emerging-market equities have been one of the investment darlings of 2017, handily outpacing their developed-market peers on a narrative of accelerating global growth. The idea that a booming world economy is consistent with EM outperformance seems so obvious that it isn’t even worth checking—but is that actually the case? I'm a macro strategist who writes Bloomberg's Macro Man column; I’ve also recently started a Mythbusters-style series in Bloomberg Markets magazine where I challenge some of the most basic assumptions in finance. For my latest endeavor, I decided to take a look at what really drives the relative returns of emerging markets.

Given the size and liquidity of the U.S. stock market, I used that as the performance benchmark for emerging-market equities. It turns out that global growth considerations do provide a decent contemporaneous explanation for relative EM performance.