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The European Union, along with the U.S., is supposed to represent the heart of the developed world. Europe is now an emerging economy, as shown by the following graph from the 5 Min. Forecast:


Europe is now an emerging market and trend lines would project it is riskier than the rest of the emerging market world.

This is reflected as well with stock market performance. The following graph shows the relative performance of EZU, EEM and the U.S. (S&P 500).


(Click to enlarge)
EEM - iShares MSCI Emerging Markets Index - BLUE
EZU -
iShares MSCI European Monetary Union Index - RED
^GSPU - S&P 500 INDEX - GREEN

The rear view mirror says emerging markets have been the best place to be. Now that everyone knows this, will the same be true for the coming one or two years? Will the U.S. join the EU as an emerging economy?

You know what they say about past performance. I expect that more active management of emerging market country investments will be required to get good investment returns over the next couple of years. If economic recovery in the "developed world" continues, albeit gradually, growth in the materials producing emerging countries, such as Brazil, may outperform the manufacturing countries such as China which could suffer more setbacks from inflation fighting than will Brazil.

If the "developed" world continues economic recovery, technology may continue to outperform and India is well positioned to continue developing into a world technology center.

Finally, countries with agricultural surpluses, both emerging and developed - such as the U.S., Canada and India - may benefit from food inflation and increasing world affluence more than countries with food deficits, such as some of the EU and China. See an interesting Op Ed from India on the opportunity for that country in food production here.

Bottom line -
1. Investors should open the breadth of analysis to include new things in the short term, like the influence of food shortages and surpluses, inflation and how growth in energy and technology will impact various countries, both positively and negatively.
2. In the longer term (10-20 years), investors must remain alert to demographic trends which favor Australia, Canada, Brazil, India and even the U.S. over Russia, China, Japan and much of Europe.

Disclosure: I am long SPY.

Source: Emerging Market Europe and the Rest of the World