Recent research from Bank of America Global Investment Strategy, shared via Bloomberg, sheds light on an interesting trend in the world of equities. The data shows a ratio of emerging market equities compared to US equities, highlighting a significant and ongoing decline in the performance of emerging markets relative to the US.
Historical Performance of Emerging Markets
The history of emerging market equities compared to US equities reveals some notable trends. In the early 1990s, particularly around 1993, emerging markets performed well against US markets. This was followed by a strong phase from 2003 to 2008, where emerging markets saw substantial growth. Additionally, from 1965 to around 1980, emerging markets also outperformed US markets. However, since 2008, the performance of emerging market equities has been on a downward trend relative to US equities.
Potential for a Shift
Despite the current trend, there is a probability that we might see another wave where emerging markets outperform US equities. Historically, financial markets have shown a pattern where liquidity moves from one asset class to another and from one region to another. This movement of money creates mini bubbles that form and deflate over time. The past cycles suggest that after periods of underperformance, emerging markets may once again see a resurgence compared to US markets.
Commodities vs. Equities
A similar trend can be observed in the commodities market. Over the last two decades, commodities have been valued much lower compared to equities. However, like the cyclical nature of financial markets, there is a possibility that this trend will also reverse at some point. When this cycle changes, commodities and emerging markets could rise rapidly relative to US equities. The trigger for this shift is uncertain, but historical patterns indicate that it is a natural phenomenon in financial markets.
For India, this potential shift presents a significant opportunity. If emerging markets begin to outperform US equities once again, India is poised to shine in the global marketplace. The rapid growth of Indian companies and the increasing global interest in India’s market make it a strong contender for benefiting from this shift. This period could be a golden opportunity for India to establish itself as a key player in the global financial landscape.
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