Buttonwood: The growth paradox

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The parable of Argentina

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Past economic growth does not predict future stockmarket returns

EMERGING stockmarkets go in and out of fashion. They were battered during the Asian and Russian crises of the late 1990s, but then recovered to offer double-digit annual returns in the first decade of the 21st century. Since 2010, however, they have reverted to underperforming their developed-country rivals.
The arguments in favour of investing in emerging markets are the same as they ever were. Such countries have faster growth, on average, than the rich world and a smaller weight in global equity indices than they do in the world’s GDP.

But as Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School have pointed out in the past, there is no automatic link between economic growth per person and stockmarket returns. In their latest report for Credit Suisse, a bank, the academics explore this issue in more detail. They find one slightly odd distinction: the correlation between equity returns …

Link to article: www.economist.com/news/finance-and-economics/21596533-past-economic-growth-does-not-predict-future-stockmarket-returns-growth-paradox?fsrc=rss

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