market equities averaged an annual return of 9.5 percent between 1975 and 2009, based on a composite of S&P and IFC indices. That was less than the 10.6 per cent return on developed market equities even though emerging economies grew at a much faster pace than their advanced peers over the 34-year period.
A recent study by BNP Paribas Investment Partners also highlighted little short-term correlation between GDP growth and equity market performance in emerging markets.
China has shown a particularly weak correlation between its economic growth - one of the fastest in the world in the past decade — and returns in its stock market. The MSCI China index has tumbled 30 percent since 2007.
“We are about as bottom-up as you can get,” said David Cornell, chief investment officer of Ocean Dial Asset Management, which runs an India equity fund.
In India and other emerging economies it is not only the middle classes who aspire to branded products, said AllianceBernstein.
Fast income growth is transforming lifestyles quickly so someone who now relies on cheap unrefined sugar to quench their sweet tooth could just as easily be buying a premium product like Haagen-Dazs vanilla fudge ice cream soon.
Haagen-Dazs is owned by Nestle. Shares of Nestle India have risen only 2 percent this year but have doubled since 2010.
Such growth in demand for luxury products has also prompted AllianceBernstein to invest in Richemont, the world’s second-biggest luxury group, which has rallied 31 per cent this year.
Still, investors in emerging markets cannot disregard economic, political and currency factors — used in a more conventional top-down approach — entirely.