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In the 2000s, as a broad economic boom in emerging economies was drawing billions of dollars into their financial markets, author Fareed Zakaria captured this historic moment as “the rise of the rest”. Now a similarly encouraging story is unfolding in the emerging world, but few observers have noticed and still fewer foreign investors have acted on this momentous shift.
After a long sojourn in the shadows of the US, emerging markets are an increasingly attractive bargain. Though they are back to posting faster earnings growth, they trade at record low valuations relative to the US. For 15 years, the US delivered superior earnings growth driven mainly by big tech, but that is turning as well. Earnings growth of the “magnificent seven” US tech firms is now expected to fall by more than half in the coming year.
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