IN HIS BOOK “The Emerging Markets Century”, published in 2007, Antoine van Agtmael marvelled at the progress of emerging markets since he coined the term in 1981. Their growth, he wrote, “will constitute nothing less than an economic landslide”. Projections from Goldman Sachs, a bank, suggested that the combined GDP of Brazil, Russia, India and China (the BRICs) would more than triple in dollar terms from 2005 to 2020. In keeping with the mood, the MSCI’s index of emerging-market shares set a record in November 2007.

There have been plenty of landslides since. Unfortunately emerging markets have often been caught beneath them. The covid-19 pandemic follows crises in Argentina and Turkey in 2018, the devaluation of China’s yuan in 2015 and the oil-price collapse of 2014. These misfortunes have opened up a large gap between emerging and mature stockmarkets. Whereas shares in the rich world regained their 2007 peak as long ago as 2014, and have since risen by about 60%, MSCI’s emerging-market index did not surpass its 2007 peak until last week, when it at last set a new record, thanks to a furious rally in recent months (see chart).

The price of the index may be near its 2007 level, but little else remains the same. China’s weight in the benchmark has risen from 16% to about 40%, thanks to both the growth of its markets and the loosening of its capital controls. Brazil’s weight rivalled China’s in 2007, but has since fallen to 5%. Two countries (Morocco and Jordan) have dropped out of the index altogether. One country (Greece) dropped into it, having been booted out of the rich-world index in 2013. Others have yo-yoed in and out. Argentina dropped out, then bounced back in (though MSCI has warned that it may be relegated again). Only Israel emerged and stayed that way.

It is natural to assume that the stagnation in emerging stockmarkets reflects setbacks in their economies. And some economies have indeed disappointed. But the combined GDP of the 25 countries in the index in 2007 has nonetheless grown from $14.4trn to $29.7trn today. (This does not adjust for dollar inflation, but then nor does the index.) The GDP of the BRICs now exceeds $20trn—thanks largely to China—fulfilling Goldman’s optimistic prediction.

And there perhaps lies the rub. Any economic success that emerging markets have enjoyed since 2007 was widely and eagerly anticipated. It was, therefore, already priced into equity markets. Moreover, the incumbent companies in an index do not always fully share in an economy’s success. Some growth may be driven by new firms that enter the index after many of their most dynamic years are behind them and their prospects are already highly priced. Energy and materials firms (such as Russia’s Gazprom or Brazil’s Vale) have been eclipsed since 2007 by consumer firms, such as China’s Meituan, an e-commerce site for food deliveries and other services, which did not even exist until 2010.

This churn should not have surprised readers of Mr van Agtmael’s book, which points out that emerging-market champions tend to rise and fall with great rapidity. It also warns against looking in the rear-view mirror. In the book Mr van Agtmael describes how the investment team he managed at the time did not have Bloomberg machines at their desks. Their job was to identify future opportunities. If they wanted to distract themselves by looking at what the market had already done, they had to get up and walk to the terminal.

This article appeared in the Finance & economics section of the print edition under the headline “A peak conquered”

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