2023 was a bitter-sweet year for EM stocks. The MSCI Emerging Markets Index rebounded from a 20% decline in 2022, delivering a gain of 10%. However, EM stocks lagged developed market (DM) peers by a wide margin, for the third year in a row, with the MSCI World advancing 24%.
Relative performance epitomised what has been a tough decade in which US stock market exceptionalism has dominated.
US exceptionalism has dominated for a decade
While the US stock market regained global leadership, performance in China failed to live up to the optimistic expectations of early 2023 as Covid re-opening disappointed. The MSCI China Index posted a third consecutive year of double-digit falls and the largest market in the index was also the weakest in performance terms.
In fact, divergent US and China market performance explains EM’s underperformance versus DM. EM excluding China outperformed the World ex US, as shown below.
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