Emerging markets tend to be volatile and crisis-prone. But before examining the risks of investing in emerging markets, let’s consider the returns earned in the past. The data sets for emerging market stocks do not extend back as far as those of developed countries. There are indexes for individual countries that extend back into the 1970s, but the broad indexes begin in the late 1980s. As in the case of the stocks of industrial countries, MSCI provides stock market indexes for the emerging markets that are widely used as benchmarks for emerging market funds. These indexes start in 1989.7 There is a composite index for the emerging markets consisting of 22 emerging markets including five from Latin America, eight from Asia, and nine from Europe, the Middle East, and Africa. There are also regional indexes. The Latin American Emerging Market consists of Brazil, Chile, Colombia, Mexico, and Peru. The Asian index consists of China, Indonesia, India, Korea, Malaysia, Philippines, Taiwan, and Thailand. The Europe and Middle East index consists of Czech Republic, Hungary, Israel, Poland, Russia, and Turkey.8

Table 6.2 examines returns on the composite index for the emerging markets as a whole as well as regional emerging market indexes. The table compares emerging market returns with those of the S&P 500 and the MSCI EAFE developed country indexes.

TABLE 6.2 Emerging Market and Developed Market Stock Returns, 1989–2009

Data Sources: MSCI and S&P.

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