Back to the complete issue
Monday, 20 November 2017

The disconnect between EM GDP growth and stock market performance can’t last forever, can it?

The disconnect between EM GDP growth and stock market performance can’t last forever, can it? That’s the contention of the Brookings Institution’s Eswar Prasad and Karim Foda (the latter spent a term doing research at the CBE about a decade ago) that gets plenty of ink this morning in the Wall Street Journal. The two found that “Over the past decade, emerging-market economies have nearly doubled in size, growing at an annualized rate of 6.6%, according to data from the International Monetary Fund. The MSCI Emerging Market stock index has climbed at an annualized rate of just 0.6% over that same decade.” What does this mean? There are four scenarios, only one of which we love: “Developed economies could accelerate much more than anyone expects, helping to justify their buoyant markets. Or developed markets could come down, better aligning with their growth. Emerging markets could also slow more than anyone currently expects, so their stock valuations look more justified. Or emerging-market stocks could boom, better aligning with their generally robust growth.” Read: Developed economies’ stock gains pale beside emerging markets’ GDP boom.

Conventional wisdom has it that rate hikes in the US are bad for EM. And Goldman Sachs apparently sees the Fed hiking rates four times next year, against an expectation of three rate increases in the wider community of rate-watchers, Reuters reports.

Are we nearing a market top, globally? While you’re reading the Journal, check out How to spot a market top, which marshals its inner Business Insider to argue, “the issue isn’t whether the market will crash, it is how much money investors will make, or lose, in the coming years. With cash sloshing around the global financial system, prices can go higher, but investors who buy at those prices shouldn’t expect their returns to match those earned in the past few years.”

Enterprise is a daily publication of Enterprise Ventures LLC, an Egyptian limited liability company (commercial register 83594), and a subsidiary of Inktank Communications. Summaries are intended for guidance only and are provided on an as-is basis; kindly refer to the source article in its original language prior to undertaking any action. Neither Enterprise Ventures nor its staff assume any responsibility or liability for the accuracy of the information contained in this publication, whether in the form of summaries or analysis. © 2022 Enterprise Ventures LLC.

Enterprise is available without charge thanks to the generous support of EFG Hermes (tax ID: 200-178-385), the leading financial services corporation in frontier emerging markets; SODIC (tax ID: 212-168-002), a leading Egyptian real estate developer; SomaBay (tax ID: 204-903-300), our Red Sea holiday partner; Infinity (tax ID: 474-939-359), the ultimate way to power cities, industries, and homes directly from nature right here in Egypt; CIRA (tax ID: 200-069-608), the leading providers of K-12 and higher level education in Egypt; Orascom Construction (tax ID: 229-988-806), the leading construction and engineering company building infrastructure in Egypt and abroad; Moharram & Partners (tax ID: 616-112-459), the leading public policy and government affairs partner; Palm Hills Developments (tax ID: 432-737-014), a leading developer of commercial and residential properties; Etisalat Misr (tax ID: 235-071-579), the leading telecoms provider in Egypt; and Industrial Development Group (IDG) (tax ID:266-965-253), the leading builder of industrial parks in Egypt.