The iShares Emerging Markets Markets Index ETF (EEM) was down about 19% last year per Morningstar. The SPDR S&P 500 (SPY) was roughly flat or up around 2% if you count dividends. Obviously being heavy in Emerging Markets in 2011 would have dragged down returns.
2012 on the other hand is a different story. Through last Friday’s close, EEM’s YTD return is around 16% while SPY is around 7%. That amount is even larger if you are weighted towards certain economies (Brazil, India).
There was a similar story in bonds; WisdomTree Emerging Markets Local Debt (ELD) was down around 2% in 2011. Certainly not catastrophic, but the iShares Barclays Aggregate Bond (AGG) was up almost 8%. This year? Through Friday’s close, ELD’s YTD return is around 8% while AGG is around flat.
The FT sites 3 big reasons: better than expected US economy, progress in the Eurozone, and evidence that China may have a soft landing.
Will this continue? I am not sure. I tend to think that if the Eurozone doesn’t spiral out of control the rest of the world could surprise nicely. Emerging Markets, being high beta, would probably be in the best spot for one of the larger gains. Further, Emerging Markets may still be undervalued relative to both historical norms and developed markets.
I am NOT trying to say Emerging Markets will for sure be the place to be in 2012, as any global disruption could send emerging market shares tumbling (they have exhibited a higher volatility). You need to be careful before selling and diversification still an important driver. However, yesterday’s trash might be tomorrow’s treasure.
