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17 The investment proposition for emerging markets is simple: they are where the growth is. Over time, that proposition has delivered. Stocks in the MSCI Emerging Market index, a widely-followed benchmark, have delivered twice the returns over the past 30 years of the equivalent index for developed-market stocks, the MSCI World. But the EM story is now under scrutiny. The intensifying trade war between the US and China has shone a light on a worrying long-term trend: the forces of global growth that boosted so many emerging economies — trade, supply chains and the commodities supercycle — are petering out, leaving the developing world in search of a new growth model. “More and more, there is a discussion that the growth story for emerging markets is just over,” says Robin Brooks, chief economist at the Institute of International Finance, an industry body. “There is no growth premium to be had any more.” The struggle for many emerging economies to recreate their past successes has been clear for the past five years. An FT analysis of data from the International Monetary Fund shows that, measured in terms of purchasing power parity, excluding the giants of China and India, growth in per capita output has been slower in emerging economies than in developed ones since 2015. Add India and China back into the data, and EMs soar ahead once again. But across the rest of the emerging world, growth has become increasingly erratic and idiosyncratic. The US-China trade war, and the tectonic changes that lie behind it, are unlikely to work in the emerging world’s favour.

The investment proposition for emerging markets is simple: they are where the growth is. Over time, that proposition has delivered. Stocks in the MSCI Emerging Market index, a widely-followed benchmark, have delivered twice the returns over the past 30 years of the equivalent index for developed-market stocks, the MSCI World.

But the EM story is now under scrutiny. The intensifying trade war between the US and China has shone a light on a worrying long-term trend: the forces of global growth that boosted so many emerging economies — trade, supply chains and the commodities supercycle — are petering out, leaving the developing world in search of a new growth model.

“More and more, there is a discussion that the growth story for emerging markets is just over,” says Robin Brooks, chief economist at the Institute of International Finance, an industry body. “There is no growth premium to be had any more.”

The struggle for many emerging economies to recreate their past successes has been clear for the past five years. An FT analysis of data from the International Monetary Fund shows that, measured in terms of purchasing power parity, excluding the giants of China and India, growth in per capita output has been slower in emerging economies than in developed ones since 2015.

Add India and China back into the data, and EMs soar ahead once again. But across the rest of the emerging world, growth has become increasingly erratic and idiosyncratic. The US-China trade war, and the tectonic changes that lie behind it, are unlikely to work in the emerging world’s favour.

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