It all comes down to equity risk premium and economic growth rates. If the new normal for the U.S. is 2% vs. the historical 3 1/2% you'd better shave that point-and-a-half from your expectations.
I'll be writing on both subjects next month.
Emerging-market stocks are in the midst of a “long-term secular bull market” that resembles the boom in U.S. equities during the post-World War II era, according to Louise Yamada Technical Research Advisors LLC.
The secular bull market in U.S. stocks between 1942 and 1966 was the second-longest ever as increased consumer spending buoyed the economy and helped more Americans join the middle class, Jonathan Lin, a New York-based senior analyst, said in a phone interview. Emerging markets such as China and Brazil may be on a similar trajectory, according to Lin, who works with Louise Yamada, the top-ranked technical analyst in Institutional Investor magazine’s annual survey from 2001 through 2004.
“Based on chart patterns and demographic trends, the MSCI Emerging Markets index looks like the Dow Jones Industrial Average during the post-World War II period,” said Lin, who defines a secular market trend as one that lasts for years to decades. “This boom could last another 10 years.”
The MSCI Emerging Markets Index has surged 43 percent this year on speculation interest-rate cuts and stimulus packages from countries including India, China and Brazil will spark a recovery in economic growth. The index gained more than 20 percent for five straight years before tumbling 55 percent in 2008 as recessions in the U.S., Japan and Europe curbed demand for developing nations’ exports....MORE