Emerging-markets funds are on fire. Over the past 12 months through April 18, the MSCI Emerging Markets index has returned 27.1%. That’s 7.6 percentage points more than the MSCI EAFE index of developed countries outside the U.S. and 9.6 percentage points better than Standard & Poor’s 500-stock index.
The rally looks likely to continue. Corporate earnings are growing at a rapid clip in many emerging markets, and the stocks are cheap. EM shares are trading at 11.9 times analysts’ estimates for the coming 12 months. That compares to a forward price-earnings ratio of 16.6 for the S&P 500 and 13.8 for the rest of the developed world. The World Bank projects emerging economies will grow 4.5% this year compared to 2.2% for developed economies.
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