Many investors regard emerging markets stocks as risky, mysterious oddballs that represent a small, quirky investing niche.
These investors, in fact probably most investors, might be startled to learn that emerging markets stocks make up 25% of the world’s total market capital.
U.S. stocks make up roughly 36% of the total global market capital, with developed international markets accounting for 39%.
“Emerging markets” refers to national economies that aren’t up to the standards of Western Europe, the U.S. and Japan. They are often characterized by rapid growth. (For a more detailed discussion, check here.)
The four largest emerging markets are Brazil, Russia, China and India. Mexico, Indonesia, Turkey and Saudi Arabia are also considered to be emerging markets, along with others including South Africa, Thailand, Chile, Peru and the Philippines.
Investors who ignore emerging markets are overlooking a source of robust potential growth.
We have reliable data for emerging markets going back to 1989. This performance history indicates that the compound return of emerging markets stocks was 11.3%, versus 10.4% for the Standard & Poor’s 500 Index SPX, -0.02% Data sourced for this report comes from Dimensional Fund Advisors.
Even though this is a relatively short time span, the 26 calendar years since 1989 include two major bear markets, two strong recoveries and a strong U.S. bull market during the 1990s in which the S&P 500 outperformed all its competition.