Emerging Market Bonds Outpace Stocks Over 30 Years, Defying Expectations
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Over the past 30 years, emerging market bonds have substantially outperformed emerging market stocks, contradicting the theory that stocks outperform bonds over the long run.
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The strength of the U.S. dollar accounts for about 1-2 percentage points of the annualized outperformance of bonds over stocks.
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Emerging market economies have grown rapidly over the past 30 years, as measured by GDP growth, so the underperformance of stocks is a mystery.
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Emerging market companies generate lower returns on invested capital compared to developed market companies, which may explain some of the underperformance.
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The author remains skeptical that emerging market stocks will begin outperforming, despite many years of optimistic forecasts that have not yet materialized.