A single EM index today spans technology exporters such as Taiwan and South Korea, vast domestic economies such as India and Indonesia, manufacturing hubs such as China and Vietnam, resource producers such as Brazil and Chile, and capital-rich Gulf states such as Saudi Arabia and the UAE. These are not variations on a theme. They differ in economic structure, institutional quality, corporate governance and exposure to external shocks – and those differences, not the aggregate growth rate, determine what investors are paid.

Growth is the raw material, but doesn’t guarantee investor returns

The uncomfortable evidence is that GDP growth does not reliably convert into equity returns. Ritter’s (2005) cross-country work found no dependable positive relationship between economic expansion and subsequent market performance. Growth can enrich workers, consumers and new entrants without ever reaching the owners of listed companies.

For equity investors, growth must survive a transmission chain: activity to revenues, revenues to profits, aggregate profits to earnings per share. Every link is breakable – by margin compression, poor capital allocation, state intervention, dilution, weak minority protections or currency depreciation.

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