Why the EM definition will have changed completely in five years

Gap in GDP growth between India and Brazil increases

Disappointing earnings, high inflation, fear of Federal Reserve tightening and the collapse of commodity prices are arguments often used to explain both emerging market equity fund outflows and a 41% point underperformance to developed markets equities, which are up 28%, since end of 2012 measured in dollar terms.

However, returns within EM countries ranges from +20% for the Philippines to -52% for Brazil, measured in dollar terms, despite the latter's 28% dollar return in Q1 this year. Who predicted that?  The gap in GDP growth between two large EM economies, India and Brazil, is a whopping 13 percentage points. Likewise, the level of economic development is highly diverse in EMs, with PPP adjusted GDP per capita in Taiwan topping that of Germany and the UK, while India stands at less than a fifth of the former. Hence, treating EM as a homogenous asset class is flawed, as economic growth potentia...