Soaring wages culprit in EM equity underperformance


Emerging markets used to deliver excess returns (as measured by the difference between ROE and cost of equity), but that gauge has fallen from 1.2% in January 2012 to -2.5% today - in other words, money is better invested in developed markets.

Credit Suisse traces this to the decline in profit margins thanks mostly to years of emerging market wage growth outpacing overall inflation. It "is now jeopardizing core-emerging market labour competitiveness," says the bank's  Alexander Redman and Arun Sai. The anecdotal reports of how China is no longer the low-cost producer thanks to soaring wages are well documented.

EM equity ETFs: EEM, ADRE, SCHE, GMM, VWO, DEM, EWEM, PXH, PIE, EWX, DGS, EMLB, EDC, EET, EMSA, EDZ, EEV, EUM, TLTE, HILO, EELV, EEMA, EMFT, DVYE, FEMS, EVAL, EGRW, EMCR, IEMG, EMDR, EEME.

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Comments (1)
  • Philip Marlowe
    , contributor
    Comments (1582) | Send Message
     
    That is a good thing. Eventually emerging markets will switch to relying on their own consumption rather than making stuff for us Americans. Their standards of living will improve, and so should ours as we would not have to compete with desperate starving people anymore.
    14 Oct 2013, 02:39 PM Reply Like
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