In the wake of> the Nasdaq collapse a decade ago, a Goldman Sachs (GS)
For many, such far-flung locales quickly went from being esoteric speculations to dominant portfolio holdings. The story was simple: Emerging markets were growing faster than developed markets like the U.S., Japan or Europe. And with the U.S. dealing with everything from terrorism to a weakening currency, investors saw emerging markets as the place where money would increasingly be made.
And for a long time it was. For the 10 years ending 2010, the MSCI Emerging Markets Index, tracked by funds like iShares MSCI Emerging Markets (EEM),
As we've written in the past the hottest and most popular investment options can often serve as great contrary indicators. The Nasdaq posted double-digit returns for five straight years before most investors finally bought into growth mutual funds in February 2000. The index peaked at 5408 one month later.
All of which makes the recent underperformance of so many previously leading emerging markets so notable. Weeks before violent unrest rocked Tunisia and Egypt, emerging market stocks had already begun to lag far behind that of their developed counterparts. Over the past three months, developed markets indexes like the S&P 500 or funds like iShares MSCI EAFE Index Fund (EFA)
Emerging Markets are Slipping Behind
SPDR S&P 500 (SPY)
Investors are starting to run for the exits as well. Last week, global fund tracker EPFR reported that $3 billion was pulled from emerging markets stock funds, adding to the $7 billion withdrawn the previous week.
After a decade of torrential growth, there's plenty to suggest the emerging markets profit train might finally be headed off the tracks.
Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC.