Very interesting read on the state of the U.S. economy in the 19th century, when the U.S. was considered an emerging market, and the comparison to what is now happening in China. The lesson: Emerging markets aren’t lucrative investments just because they are “emerging.” They deliver higher returns only after they have been battered, as China is being battered now. A study of more than a century’s worth of investment returns shows that emerging markets deliver their best results not when hopes are highest, but after they break investors’ hearts.
Early in the 19th century, middle-class Americans began speculating wildly on stocks, egged on by financial promoters publishing tout sheets that hyped the hot stocks of the day, like the Morris Canal & Banking Co. Kickbacks and favors flew as local and state officials, as well as the federal government, pumped public funds into companies run by their cronies. Stock exchanges sprang up everywhere from Norfolk, Va., to Virginia City, Nev., and foreigners soon followed the locals in the speculation. China’s evolution as an emerging market has thus far followed a similar path. As a nation that aspires to be a developed market but is still emerging, China remains subject to the wrenching volatility and wild swings of sentiment that have always characterized young and rambunctious markets.