U.S. Stocks May Continue to Outperform International Markets Due to Slipping Emerging Market Freedom Scores
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U.S. stocks have outperformed international stocks for decades, possibly due to greater openness, stability, and legal protections in the U.S. market.
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Emerging markets saw improvements in metrics like the CATO Institute's Human Freedom Index until 2010, coinciding with a period of EM outperformance.
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Since 2010, EM scores have deteriorated while developed markets fell briefly due to COVID-19 restrictions. This could hurt future EM investment returns.
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Aggregating country-level scores shows EM markets rank below developed markets in freedom, legal protections, and rule of law.
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Deteriorating scores in EM suggest global equity returns may continue to favor the U.S., as has been the case for the last several decades.