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Emerging-Market Returns Unhinge From Developed: Chart of the Day

Emerging-market equities are ailing in comparison to stocks in developed markets as gains in wages outpace economic growth.

The CHART OF THE DAY shows that from June 2010 through 2012, the positive correlation between developed and emerging- market equities daily performance was 89.6 percent, according to data from the global economic research unit of JPMorgan Chase & Co. in New York. This year, the relationship has reverted to a negative correlation of 60.3 percent as emerging-market stocks slumped.

Emerging markets could continue to get hurt because their economies aren’t growing as fast as they were before but their wages continue to rise,” said Andres Garcia-Amaya, a New York- based global market strategist in JPMorgan’s investment management unit, referring to a time frame of one to three years. Commodities that have “taken a beating” since the start of the year could also weigh on the emerging markets because “in developed economies, their equity markets are a lot more balanced when it comes to their sector composition.”

The U.S., Japan and nine other economies made up the developed markets cited in the JPMorgan data, while the emerging markets were 14 countries that included the so-called BRIC nations -- Brazil, Russia, India and China.

The picture may be brighter for emerging-market equities beyond the next three years, Garcia-Amaya said. Stabilization in China could especially help staunch the slump in those economies.

Economic growth in China slowed to 7.7 percent in the first three months of this year, less than the 8 percent median forecast, government data released April 15 showed.

To contact the reporters on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net; Ilan Kolet in Ottawa at ikolet@bloomberg.net

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; Alex Tanzi at atanzi@bloomberg.net

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