Emerging markets offer dubious investment appeal

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LONDON, May 12 (Reuters Breakingviews) – U.S. stock markets are tumbling but shares from developing economies have fallen just as fast. Since the start of the year, the S&P 500 Index of big U.S. companies is down about 17%; the MSCI Emerging Markets Index has dropped 18%. This basket of stocks, containing shares in companies from Brazil to the United Arab Emirates, now looks relatively good value. Investors who bought these equities when they were cheap at the turn of the century enjoyed excellent returns. Unfortunately, China’s increasing weight suggests that happy experience won’t be repeated.

In the early 1980s the Dutch economist Antoine van Agtmael wanted to launch a “Third World Investment Fund” but was told the name wasn’t catchy enough. So he came up with the more upbeat “emerging markets”. In 1985, the first index tracking these stocks was launched. A couple of years later, MSCI created its own benchmark. Fund managers promoted…

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