Outperformance of emerging equities looks here to stay

The performance of emerging market (EM) equities in 2010 has been disappointing relative to last year but has still been better than the performance of developed market equities. The MSCI Emerging Markets ($) equity index is broadly flat year-to-date while the MSCI World ($) index is down nearly 5% over the same period. (See Chart 1.) The outperformance, which is also apparent in local currency terms, should continue for three reasons.