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Companies, Not Countries
The Real Opportunity in Emerging Markets
The Allure of Emerging Markets
For decades, the promise of emerging stock markets has fascinated and attracted
investors. Despite chronic volatility and, at times, breathtaking market plunges, the
“rising tide” of economic growth in developing countries has been a compelling
story. With economists predicting that growth in developing countries could outpace
that of developed economies by as much as 200%–300% over the next several
decades, that story is more compelling than ever (Display 1).
Not only are return expectations higher, but many of the high-risk elements of
emerging markets appear to be diminishing. In the past, emerging countries were rife
with fiscal and monetary mismanagement, significantly contributing to their recurring
growing pains. But over the last decade or so, a wave of structural reforms has swept
across much of the developing world, and emerging market fundamentals have
Display 1
Expectations for Future Emerging Markets Economic Growth Are High
Projected* Real GDP Growth
SUMMARY
The conventional investment wisdom
of “going where the growth is”
would suggest increasing equity
allocations to emerging markets.
But our research shows that there’s
little relationship between countrylevel GDP growth and local stock
market returns. The best way to take
advantage of the developing world’s
growth is through bottom-up
research that identifies companies
that are most likely to benefit and
that are priced attractively.
2007–2050 (USD)
10
8
Percent
6
Emerging Avg. 5.6%
4
2
Developed Avg. 2.0%
0
n
Japa y
an
Germ
Italy
UK
ce
Fran
n
Spai
US
da
Cana
ralia
Aust a
re
S. Ko
nd
Pola
ia
Russ
ico
Mex
rica
S. Af
ntina
Arge
y
Turke
il
Braz
land
Thai a
ysi
Mala
stan
Paki sia
ne
Indo
a
Chin
t
Egyp nes
ppi
Phili
India
Historical analysis and current estimates do not guarantee future results.
*Projections from PricewaterhouseCoopers, March 2008
Source: John Hawksworth and Gordon Cookson, The World in 2050: Beyond the BRICs,
PricewaterhouseCoopers, March 2008
MARCH 2010
Display 2
There Are Good Reasons to Believe that Growth Is Sustainable
Emerging Markets Current Account
Emerging Markets Foreign Currency Reserves
USD Billions
USD Trillions
1,000
6
800
5
600
4
400
3
200
2
0
1
98
09E
Percent
45
40
35
30
25
0
(200)
Emerging Markets External Debt to GDP
20
99
09
98
02
06
10E
As of January 22, 2009
Historical analysis and current estimates do not guarantee future results. Data, including estimates through 2009, are subject to change.
Source: International Financial Statistics (IFS), International Monetary Fund (IMF), and World Economic Outlook (October 2009)
Do rising GDP estimates and more favorable risk factors signal the
opportunity of a lifetime for investors? The common investment
wisdom of “going where the growth is” would suggest increasing equity allocations to emerging markets—and that is exactly
what investors have been doing (Display 3). From 2005 through
2009, US investors poured more money into emerging markets
equity funds than into US funds, with about 40% of the flows
going to single-country or target group funds, such as the
so-called BRIC countries: Brazil, Russia, India, and China.1
But our research suggests caution. Simply allocating more of
one’s portfolio to growing markets (whether emerging or
developed) fails to take into account an important but often
overlooked truth: that typically there is no direct relationship
between a country’s GDP growth rate and investor returns.
While the developing world will likely continue to expand its
share of the global economy as well as of the world equity
markets, this shift does not in and of itself guarantee outsized
returns for investors in emerging markets stocks.
pursue individual securities in emerging markets. Second, it
creates opportunities for companies of all nationalities to
participate in the growth. Identifying the best performers
among those companies, regardless of their home base, is the
key to benefiting from emerging markets growth. In other
words, investors shouldn’t simply “go where the growth
is”—they should go where the profit growth is. And remember,
the maturation of the emerging markets does not negate the
need for vigilance toward risk. Avoiding over-concentration in a
single country, industry, or stock is still vitally important.
Display 3
Investors Believe the Story
Emerging Markets Fund Flows Relative to US Fund Flows
1994–2009
90
60
30
USD Billions
strengthened dramatically. As Display 2 shows, current accounts
have moved from deficits to surpluses; currencies are stronger;
and formerly heavy debt burdens have been greatly reduced.
0
(30)
(60)
(90)
(120)
However, the maturation of the developing world does present
a wealth of opportunity in two important respects: First, with
the lowering of country-specific risks, investors are freer to
Source: Lipper, Strategic Insight, and AllianceBernstein
1
2
Companies, Not Countries: The Real Opportunity in Emerging Markets
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Through December 31, 2009
Source: Lipper, Strategic Insight, and AllianceBernstein
Display 4
The Link Between GDP Growth and Stock Market Returns
In the US, Long-Term Stock Market Growth Has Tracked
the Economy
Why doesn’t GDP growth automatically translate into investor
returns? It would seem to be intuitive: Stock values, after all,
reflect corporate profit growth over time, which is a key factor
of GDP growth. In the US, for example, there is a clear longterm relationship between GDP growth and stock market
returns since World War II, as seen in Display 4.
Annualized Growth Rates
1948–2009
S&P 500 Price
US GDP*
S&P 500 Operating Earnings†
48
54
61
68
7.2%
6.7
6.1
75
82
89
96
03
09E
As of December 31, 2009
Past performance does not guarantee future results.
*Actual GDP through December 31, 2008; 2009 GDP estimate by
AllianceBernstein as of December 31, 2009
†Actual earnings through December 31, 2008; 2009 consensus estimate as of
December 31, 2009
Source: FactSet, Standard & Poor’s, Thomson First Call, US Bureau of Economic
Analysis, and AllianceBernstein
But there is also a lot of volatility in the relationship along the
way. As the display shows, stock market returns can “de-link”
from GDP growth for long periods of time. In fact, over the
most recent 20-year period, there is effectively no relationship
between GDP growth and long-term investor returns on a local
country basis in either the developed or emerging markets
(Displays 5 and 6).2
To stress-test these results, we also looked at each five-year
period. (See Appendices 1 and 2, pages 8–9). The results were
the same.
Display 5
But the Relationship Between Market Growth and the
Economy Doesn’t Hold Elsewhere…
Display 6
…Particularly in the Emerging Markets
20 Years Ending December 2009†
8
12
6
8
4
4
2
0
0
(4)
8
16
6
12
4
8
2
4
0
0
a
Brazil
pines
Philip
n
Jorda
tin
Argen
o
Rea l Per Capita GDP Growth
Mexic
Turkey
nd
Thaila
e
sia
Malay
esia
Indon
al
Portug
Chile
Total Equity Return
20
Greec
Japan
en
Swed
d
Finlan land
ea
New Z
Italy
lia
Austra
France nd
rla
Switze
dom
d King
Unite
Kong
Hong
any
Germ
Austria
ark
Denm
m
Belgiu ds
rlan
Nethe
Spain
ay
Norw
pore
Singa
Real Per Capita GDP Growth
*All countries categorized as Developed by MSCI as of January 1990
†All values annualized; nominal stock market returns; (R2)=0.11; see definition of R2, pg. 8.
Source: International Finance Corporation (IFC), IMF, and Morgan Stanley Capital
International (MSCI)
10
Equity Return, USD (%)
16
Equity Return, USD (%)
10
GDP Growth (%)
Emerging Markets* Real Per Capita GDP Growth vs. Stock Market Returns
20 Years Ending December 2009†
GDP Growth (%)
Developed Markets* Real Per Capita GDP Growth vs. Stock Market Returns
Total Equity Return
*All countries categorized as Emerging by MSCI as of January 1990
†All values annualized; nominal stock market returns; (R2)=0.02; see definition of R2, pg. 8.
Source: IFC, IMF, and MSCI
Here we show a comparison of per capita GDP growth to stock market returns, but the conclusion also holds for total GDP growth, which includes growth driven solely by
population expansion.
2
3
Where Do Equity Returns Come From?
Total return—for all markets, not just emerging markets—
comes from three components: the return from dividends, the
return from changes in the price/earnings (P/E) multiple, and
earnings-per-share (EPS) growth.
Only one component, EPS growth, is relevant when considering how economic growth may affect shareholder returns.
That’s because corporate earnings (the “E” in EPS) are directly
related to economic growth, while dividend yield and changes
to the P/E multiple have tenuous links at best. Let’s look at
each in turn:
n
n
n
Dividend yield, defined as cash payments to investors scaled
by the price paid per share, is highly idiosyncratic, as it is
determined by a company’s directors. Clearly, investors are
not pouring money into emerging markets because they think
there will be a systemic change in dividend policy.
The P/E multiple is determined by the company’s current stock
price as much as it is by earnings. Changes in the P/E multiple
are primarily an indicator of investors’ perceptions about
changes in the future earnings growth rate. If investors
believe that the emerging markets will grow faster than
current expectations, some P/E expansion might be expected.
Earnings per share is the component most directly related to
economic growth—at least to the extent that a rising GDP
tide will “lift all boats” as local companies benefit from
increasing economic activity. However, even this relationship is
not as direct as one might expect, as we will see.
Why isn’t there a closer link between EPS and GDP? Because the
connection is too tenuous. Think of it like a leaky water pipe:
Even if GDP is gushing into the pipe, what emerges at the other
end is a calm stream. Display 8 (following page) illustrates the
sources of leakage.
Who benefits from a nation’s GDP growth? Broadly, government
(via taxes and state-owned enterprises, for example), labor (via
personal consumption and investment), and corporations, as
shown in the left bar of Display 8. Stock market investors can’t
invest directly in government or labor, so some of the GDP growth
gets diverted from EPS growth here. Corporations, in turn, fall into
categories: private and public enterprises, as shown in the middle
bar. Since the great majority of investors invest only in publicly
traded companies, we can strip out the private enterprises. So, the
share of earnings going to the stock market depends on—among
other things—the extent of government’s involvement in business
and the bargaining power of labor, as well as the relative growth
of public versus private business. The relative impact of all these
factors varies greatly from country to country.
Display 7
The Link Between GDP Growth and EPS Growth Is Weak
Per Capita GDP Growth vs. EPS Growth*
MSCI Emerging Markets EPS (1993–2009)
20
EPS Growth (%)
Why isn’t the relationship between GDP growth and long-term
investor returns more reliable? For insight, let’s break down the
sources of equity returns.
Argentina
10
R2=0.23
0
China
(10)
(20)
0
2
4
6
8
10
12
14
Per Capita GDP Growth (%)
The Weak Link Between GDP and EPS
As Display 7 indicates, the historical relationship between
economic growth and EPS growth in the emerging markets—even after discounting the effects of significant outliers—
is not particularly strong. In fact, a striking outlier is China,
arguably the most exciting GDP growth story of the past 15
years, where the EPS growth has been negative: (3)% per annum.
4
Companies, Not Countries: The Real Opportunity in Emerging Markets
All countries categorized as Emerging by MSCI as of January 1990
*Real per capita GDP growth; countries with more than 12 years of EPS data;
R2=0.23 excluding China and Argentina; R2=0.01 including China and Argentina;
see definition of R2, pg. 8, and Appendices 3 and 4 for data.
Source: IMF, MSCI, and AllianceBernstein
Last but not least, the right-hand bar shows a final “leak” from
the pipeline: Public company earnings can be divided into the
portion captured by new share issues and the portion tied to
already existing shares. Only the existing shares, by definition,
determine EPS growth. Further, new shares dilute the value of
existing shares. The impact of equity issuance is especially
pronounced in the emerging markets, where a large number of
companies have migrated to the public markets since the late
1980s, and we can reasonably assume they will continue to do
Display 8
The Link Between GDP and EPS Is Tenuous
Hypothetical Path from GDP to EPS
so as the markets grow. As Display 9 shows, the expansion in the
number of listed public companies has accounted for an increase
of more than 21% in aggregate earnings of publicly traded
companies per year over the past two decades, and an increase
in total emerging markets capitalization of almost 25% annually.
The Chinese experience highlights yet another important,
though often overlooked, disconnect in the GDP-to-EPS growth
pipeline. Globalization encourages firms around the world to
allocate portions of their investments and operations into
foreign countries, often attracted by cheap labor. For China,
this has meant large inflows of foreign direct investment and a
rising share of total Chinese exports produced by foreignrelated firms (Display 10).
Gov’t
Labor
Private
Public
Corp.
Profits
Corporate
Profits
GDP
New Issuances
Existing Shares
Local Stock
Market
Source: AllianceBernstein
While this aspect of China’s economy, like that of many other
developing nations, may benefit the country and its overall
growth, it does not necessarily translate into a competitive
advantage for Chinese companies, thus further clouding the
link between GDP growth and EPS growth. On the contrary, it
suggests that the rise of developing world economies may have
as profound an impact on companies based in developed
nations as it does on emerging markets companies themselves.
Display 10
Foreign-Related Firms Produce More than Half of
Chinese Exports
New-Share Issuance Further Weakens GDP-EPS Link
Impact of New Shares
on Total Returns
Percent
Percent
24.9
21.4
12.7
10.8
7.8
7.1
9.7
8.4
Exports of Foreign Firms in China
1,600
80
1,200
60
800
40
400
20
0
0
96 97 98 99 00 01 02 03 04 05 06 07 08 09
Foreign
Developed
Emerging
Aggregate Earnings Growth
EPS Growth
Developed
Emerging
Market Cap Growth
Total Return
Total
Shares of Foreign Affiliates (%)
Impact of New Shares
on EPS
Exports (USD Billions)
Display 9
Percent
As of November 30, 2009
Source: CEIC Data, Chinese Ministry of Foreign Trade and Economic Cooperation,
and United Nations Conference on Trade and Development
December 1987 through April 2008, annualized USD
Source: MSCI, Standard & Poor’s/IFC, and AllianceBernstein
5
Indeed, in a world where companies and markets operate across
national borders, ultimately it is global economic growth—not the
growth of the country or market where a given company is
domiciled—that determines the parameters of global EPS growth.
one had to contend with the ever-present possibility of being
“right about the company but wrong about the country.”
Concerned about country risk, many investors avoided exposure
to the emerging markets altogether.
The weak link between a country’s GDP growth and the EPS
growth of companies domiciled there suggests that investors
should not expect a free ride simply by investing passively in a
fast-growing economy. As we discuss in the next section,
however, the globalization process does create the potential for
higher returns by expanding the universe of publicly traded
companies that may benefit from the rise of the world’s
developing economies.
Those who invested in emerging markets often did so for
diversification purposes. For many years, emerging markets
equities traded in highly segmented markets, each with unique
return potential and risks. The idiosyncratic nature of these risks
tended to dampen short-term correlations with both developed
markets and other emerging markets, providing valuable
portfolio diversification benefits. Today, however, the diversification benefit is smaller as correlations between the emerging and
developed world have increased (Display 11). Globalization has,
in effect, created greater linkages between countries, causing
the world’s stock markets to move more closely together. Some
would go so far as to argue that once you combine the higher
historical volatility of the emerging markets with the now-higher
correlation with the developed world, emerging markets should
be removed from investor portfolios.
How Investors Can Benefit from Emerging Markets
GDP Growth
Over the past 15 to 20 years, the pace of market openings and
reforms has increased dramatically across the developing world,
leading not only to new investment opportunities but also to a
more attractive environment for investors. Prior to the late
1980s and early 1990s, a vast array of constraints, both
practical and regulatory, kept most emerging equity markets
largely closed to foreign investment. So-called country risk was
an ever-present danger, whether in the form of political
instability, corruption, or other intrinsic problems. In the past,
However, a side effect of this rising correlation is that the
country-level risk has decreased substantially as a driver of the
investment decision (Display 12). So, while idiosyncratic country
risk remains, the percentage of an individual stock’s return that
Display 11
Display 12
The Correlation Between the Emerging Markets and the
Developed World Has Been Rising
Country-Specific Risk Factors Have Diminished as
Markets Globalize
Correlation of Emerging Market Returns to Developed Market Returns
Percent of Individual Stock Variance Explained by Country of Domicile
Five-Year Rolling Periods, 2000–2009
100
Emerging:
Developed:
90
26.5%
16.3%
30
Percent
95
Percent
40
Annualized Volatility
1996–2009
85
80
10
75
0
70
00
01
02
03
04
05
06
07
08
Through December 31, 2009
Past performance does not guarantee future results.
Source: MSCI and AllianceBernstein
6
20
Companies, Not Countries: The Real Opportunity in Emerging Markets
09
93
95
97
99
Through December 31, 2009
Source: MSCI and AllianceBernstein
01
03
05
07
09
is attributable to its country of domicile has declined dramatically. Thus, to minimize risk, an investor should search across the
widest possible opportunity set to find the best investment
opportunities and control risk through prudent diversification
across industries, sectors—and countries.
As active managers, we look for dispersion in the investment
opportunity set in order to find companies that are positioned
to outperform. For example, while consensus economic
forecasts expect Spain to have the least GDP growth in 2010
and China the greatest, there is a wide range of forecasted
earnings among companies based within each country. There
are many companies headquartered in Spain whose growth
prospects are better than companies domiciled in China.
Likewise, while the P/E multiple of the Spanish market overall is
significantly lower than that of the Chinese stock market, there
are still many companies headquartered in China that are
cheaper than those in Spain (Display 13).
In the past, most investors who wished to invest globally determined geographic weighting first, then selected specific investments within those geographies. In an increasingly global
marketplace, however, geographic weightings should be an
effect—not a cause—of bottom-up stock selection. This may
cause sector weightings to stray from geographical considerations.
At the time of this writing, for example, Bernstein’s global research
team found the most attractive materials sector opportunities in
emerging markets companies. But we see the best technology
opportunities in the US, while the best financials and telecom
sector opportunities are in developed international countries.
Opportunities for Bottom-Up Research
While there is compelling potential in emerging markets today,
the opportunities lie more in specific companies than in the
markets as a whole—and these companies may be domiciled in
emerging or developed countries. Due to the impact of ongoing
market integration, investors should prepare for a world where
Display 13
Attractive Stocks Can Be Found Within Every Country
Fast-Growing Stocks
Cheap Stocks
2010 Earnings Growth*
Price/2010 Earnings*
28.3%
26.9%
65.2×
36.9×
9.8%
5.2%
10.9×
2.3×
Spain
China
Top Decile
Spain
China
Bottom Decile
As of December 31, 2009
*Consensus earnings estimates; current estimates do not guarantee future results
Source: MSCI, Thomson I/B/E/S, and AllianceBernstein
exposure to stocks domiciled in emerging markets is simply the
natural outgrowth of a global investment framework.
Our research suggests that emerging markets should represent,
on average, between 5% and 10% of global equity investments
based on their fair share of the global opportunity set and the
investor’s willingness to take on currency risk. Diversification
across both stocks and markets will remain essential, as countryspecific events can still produce disappointing outcomes.
Above all, investors should not overweight a country or region
solely based on GDP growth expectations. Investment success
will be determined by the ability to identify the companies that
will benefit most from emerging markets growth and that will
pass on those benefits to investors. Identifying these companies
and investing in them successfully will be the result of bottomup stock research that is truly global in scale and perspective. n
7
Appendix 1: GDP* and Equity† Compound Annual Growth Rate Over Five-Year Periods
Developed Countries
1989–1994
Country‡
GDP
Equity
1995–1999
GDP
Equity
2000–2004
GDP
Equity
2005–2009
GDP
Equity
Australia
1.6%
8.4%
1.8%
8.8%
8.3%
13.2%
5.8%
12.3%
Austria
7.9
0.4
0.8
(1.2)
6.0
21.8
5.0
(4.1)
Belgium
8.0
7.2
1.3
19.1
6.8
5.1
4.5
(4.4)
Denmark
6.6
3.2
2.1
19.4
6.7
8.2
4.3
9.7
Finland
(3.5)
6.8
5.1
56.5
7.4
(13.5)
4.9
3.4
5.8
4.2
1.0
23.7
6.4
(0.1)
4.4
5.4
10.9
5.1
(0.2)
21.2
5.0
(3.1)
3.4
7.2
France
Germany
Greece
—
—
—
—
—
—
7.7
(2.4)
13.0
27.2
2.1
14.1
(0.2)
(0.3)
3.9
9.3
Ireland
—
—
10.8
17.2
12.2
5.2
2.2
(18.0)
Italy
3.3
(1.5)
2.6
19.3
7.3
5.0
3.0
(0.7)
Japan
9.6
(3.4)
(2.0)
2.1
0.9
(6.3)
1.9
(0.7)
Malaysia (Former) (Retired)
—
—
(1.2)
(8.8)
—
—
—
—
Netherlands
7.2
13.2
2.8
22.4
7.5
(2.5)
4.6
6.6
New Zealand
2.2
7.6
1.0
2.6
10.2
14.9
1.0
(1.1)
Norway
3.8
3.5
4.4
6.5
9.6
13.7
6.4
10.6
Portugal
—
—
—
—
7.3
2.1
3.8
4.6
15.0
16.0
0.2
3.8
4.8
(3.7)
5.5
14.6
Spain
4.9
0.4
3.3
30.0
9.6
5.7
4.9
11.3
Sweden
0.6
5.4
3.2
34.1
6.5
(1.6)
1.7
6.6
Switzerland
6.6
14.8
(0.6)
20.1
6.0
3.4
5.8
7.2
United Kingdom
4.0
8.6
6.9
20.2
7.5
0.4
(0.6)
Hong Kong
Singapore
R2
0.14
0.18
0.17
2.4
0.11
Total R2—All Periods
0.01
R2 is a statistical measure that captures how much one statistic predicts another. For example, if the R2 between GDP growth and local equity market growth is
0.14, that means that GDP growth explained about 14% of the change in local equity market growth. Other factors accounted for about 86% of the movement.
Developed and Emerging countries categorized as such by MSCI at the beginning of each period, as of December 31, 2009 (Malaysia categorized as both emerging and developed
in the 1995–1999 time period.)
*GDP is expressed in current US dollars per person. Data are derived by first converting GDP in national currency to US dollars and then dividing it by total population.
†All values annualized; nominal stock market returns
‡Each series is comprised of those countries that were categorized as Emerging or Developed by MSCI at the start of any one of the periods.
Source: IMF, MSCI, and AllianceBernstein
8
Companies, Not Countries: The Real Opportunity in Emerging Markets
Appendix 2: GDP* and Equity† Compound Annual Growth Rate Over Five-Year Periods
Emerging Countries
1989–1994
1995–1999
Country‡
GDP
Equity
Argentina
23.9%
28.7%
0.8%
GDP
2000–2004
Equity
GDP
11.4%
(12.6)%
1.0
Equity
2005–2009
GDP
Equity
(5.1)%
13.6%
14.4%
8.4
16.2
32.9
Brazil
2.3
26.9
(1.8)
8.2
Chile
12.3
46.8
4.3
(2.5)
4.2
9.5
8.2
18.6
China
—
—
—
—
11.5
(3.0)
19.1
23.8
Colombia
—
—
(0.8)
(10.2)
1.5
34.2
13.2
30.2
Czech Republic
—
—
—
—
12.8
34.9
11.1
17.6
Egypt
—
—
—
—
—
—
16.4
26.4
Greece
7.0
8.3
4.0
33.8
10.6
(5.3)
—
—
Hungary
—
—
—
—
16.6
17.2
4.2
4.8
India
—
—
5.2
2.1
7.0
7.7
11.5
20.9
Indonesia
10.3
(2.1)
(6.0)
(13.7)
9.8
6.2
13.4
25.6
Israel
—
—
—
—
0.7
2.8
9.0
13.3
Jordan
2.1
10.6
2.8
(1.1)
4.4
22.4
12.0
(1.5)
Korea
—
—
0.1
(1.5)
8.6
6.3
1.8
12.9
Malaysia
10.9
13.9
(1.2)
(8.8)
—
—
8.8
12.9
Mexico
13.6
32.5
0.9
11.7
6.2
10.0
2.0
16.2
Morocco
—
—
—
—
—
—
8.4
19.2
Pakistan
—
—
0.0
(15.3)
4.4
23.8
9.2
3.1
Peru
—
—
1.2
1.0
4.6
19.0
11.0
34.5
Philippines
6.0
23.5
1.4
(14.5)
0.4
(10.6)
10.6
17.8
Poland
—
—
10.1
8.0
8.8
9.1
10.9
7.7
Portugal
10.8
(3.4)
4.7
18.8
—
—
—
—
Russia
—
—
—
—
25.3
18.6
16.7
12.6
South Africa
—
—
—
—
9.0
13.2
3.9
12.4
Sri Lanka
—
—
4.6
(14.3)
3.6
13.4
—
—
Taiwan
—
—
—
—
1.5
(6.4)
1.1
6.7
Thailand
13.3
17.5
(4.1)
(23.3)
4.5
7.3
9.9
10.4
Turkey
1.9
(7.5)
6.2
37.2
7.1
(5.5)
7.5
13.9
Venezuela
—
—
8.6
4.9
1.0
12.8
—
—
R2
0.15
0.26
0.08
0.22
Total R2—All Periods
0.25
Developed and Emerging countries categorized as such by MSCI as of December 31, 2009
*GDP is expressed in current US dollars per person. Data are derived by first converting GDP in national currency to US dollars and then dividing it by total population.
†All values annualized; nominal stock market returns
‡Each series is comprised of those countries that were categorized as Emerging or Developed by MSCI at the start of any one of the periods.
Source: IMF, MSCI, and AllianceBernstein
9
Appendix 3: GDP Growth and EPS Growth
Developed Countries
EPS*
Country
Start Dates‡
Start
End
Australia
1989
$20.30
30.54
Austria
1989
18.21
Belgium
1989
41.59
Denmark
1989
Finland
France
GDP Per Capita ($000)†
CAGR
Start
End
2.0%
16.1
42.0
CAGR
4.7%
43.37
4.2
17.5
45.1
4.6
18.70
(3.7)
15.7
43.0
4.9
32.42
153.35
7.7
22.1
55.9
4.5
1989
7.99
17.19
3.7
21.8
45.9
3.6
1989
32.16
85.69
4.8
17.9
42.1
4.2
Germany
1989
27.50
37.44
1.5
16.0
39.4
4.4
Greece
1992
17.76
43.71
5.4
10.6
30.3
6.4
Hong Kong
1989
123.38
300.81
4.3
10.5
29.6
5.0
Ireland
1993
8.86
8.72
(0.1)
14.1
51.1
8.4
Italy
1989
14.63
24.17
2.4
15.2
35.0
4.0
Japan
1989
76.11
(62.75)
(5.1)
24.2
39.6
2.4
Netherlands
1989
46.55
32.57
(1.7)
16.4
47.0
5.2
New Zealand
1989
9.72
5.74
(2.5)
13.3
25.4
3.1
Norway
1989
21.81
84.14
6.6
23.7
76.7
5.7
Portugal
1992
5.56
8.86
2.8
10.4
20.7
4.1
Singapore
1989
43.69
190.25
7.3
8.9
34.3
6.6
Spain
1989
9.59
53.14
8.5
9.4
31.1
5.9
Sweden
1989
63.03
227.21
6.3
23.0
43.1
3.0
Switzerland
1989
33.17
88.41
4.8
29.2
66.1
4.0
United Kingdom
1989
39.57
83.35
3.6
15.0
35.7
4.2
Developed and Emerging countries categorized as such by MSCI as of December 31, 2009
*Trailing 12-month EPS as recorded on the final calendar day of each year.
†GDP is expressed in current US dollars per person. Data are derived by first converting GDP in national currency to US dollars and then dividing it by total population.
‡Start and end dates were determined by the earliest year earnings data became available for each country by MSCI. Countries with less than 12 years of EPS data were omitted from
this analysis to preserve statistical integrity.
Source: IMF, MSCI, and AllianceBernstein
10
Companies, Not Countries: The Real Opportunity in Emerging Markets
Appendix 4: GDP Growth and EPS Growth
Emerging Countries
EPS*
Start
GDP Per Capita ($000)†
Country
Start Dates‡
End
CAGR
Start
End
CAGR
Argentina
1992
$12.88
$263.74
19.4
6.8
7.5
0.5%
Brazil
1994
57.79
212.82
9.1
3.8
7.7
4.8
Chile
1992
36.53
109.67
6.7
3.3
8.9
6.0
China
1996
4.51
3.08
(2.9)
0.7
3.6
13.3
Colombia
1994
7.17
31.46
10.4
2.4
4.7
4.5
Czech Republic
1996
8.75
52.01
14.7
6.0
18.2
8.9
Greece
1992
17.76
43.71
5.4
10.6
30.3
6.4
Hungary
1996
7.63
52.14
15.9
4.4
12.4
8.3
India
1994
5.09
21.49
10.1
0.3
1.0
7.9
Indonesia
1992
19.89
38.66
4.0
0.8
2.2
6.0
Israel
1995
5.09
12.93
6.9
18.6
51.1
7.5
Jordan
1995
4.58
9.44
5.3
1.6
3.8
6.4
Korea
1995
10.90
18.40
3.8
12.0
16.4
2.3
Malaysia
1992
9.72
16.86
3.3
3.2
7.5
5.1
Mexico
1992
99.53
226.79
5.0
4.2
8.0
3.9
Pakistan
1994
6.95
8.11
1.0
0.5
1.0
4.5
Peru
1994
5.46
46.53
15.4
2.0
4.4
5.5
Philippines
1992
25.67
14.09
(3.5)
0.8
1.7
4.4
Poland
1995
46.52
46.67
0.0
3.6
11.1
8.4
Portugal
1992
5.56
8.86
2.8
10.4
20.7
4.1
Russia
1997
16.42
50.86
9.9
2.7
8.9
10.3
South Africa
1995
14.73
28.18
4.7
3.7
5.6
3.1
Sri Lanka
1994
13.04
2.15
(11.3)
0.7
2.0
7.3
Taiwan
1996
10.54
1.06
(16.2)
13.4
15.4
1.0
Thailand
1992
22.87
11.71
(3.9)
1.9
4.0
4.4
Turkey
1992
15.32
42.08
6.1
3.9
8.4
4.6
Venezuela
1995
9.51
28.91
9.7
3.5
8.3
7.3
Developed and Emerging countries categorized as such by MSCI as of December 31, 2009.
*Trailing 12-month EPS as recorded on the final calendar day of each year
†GDP is expressed in current US dollars per person. Data are derived by first converting GDP in national currency to US dollars and then dividing it by total population.
‡Start dates were determined by the earliest year earnings data became available for each country by MSCI. Countries with less than 12 years of EPS data were omitted from this
analysis to preserve statistical integrity. All periods end in 2009, except for Venezuela which ends in 2007.
Source: IMF, MSCI, and AllianceBernstein
11
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