But this very unequal distribution of output and capital will not last.
The emerging nations’ share of output and equity capital has been rising
rapidly and will continue to do so. As we shall see, the forces unleashed
by the communications revolution and market capitalism will push
countries such as China and India to the forefront of the world economy.
Nevertheless, investors should not become too enchanted with eco-
nomic growth. We learned in Chapter 8 that growth does not guarantee
good returns. A look at history shows that there have been many times
when investor hopes of superior returns were dashed by subsequent
events.
CYCLES IN FOREIGN MARKETS
In the past, strong U.S. markets were often coupled with weak foreign
markets and vice versa. In the 1970s and 1980s, U.S. stock returns lagged
behind both Europe and Japan, then surged to the head of the pack in
the 1990s, only to lag behind again this decade, as shown in Table 10-1.
164 PART 2 Valuation, Style Investing, and Global Markets
TABLE 10–1
Compound Annual Dollar Returns in World Stock Markets, 1970 through December 2006 (Standard
Deviations in Parentheses)10.81% 6.96% 19.92% 11.96% 4.65%
(17.07) (18.09) (14.59) (13.94) (20.76)
11.57% 10.09% 22.77% 7.33% 7.08%
(21.93) (22.77) (23.28) (16.93) (23.85)
10.84% 4.61% 17.13% 19.01% 2.45%
(17.10) (19.01) (12.52) (14.39) (18.35)
12.27% 8.57% 18.49% 14.50% 7.34%
(20.95) (20.97) (25.89) (12.71) (24.33)
11.47% 17.37% 28.66% -0.69% 4.28%
(34.69) (45.41) (28.57) (28.90) (25.71)*World = Morgan Stanley Capital International (MSCI) Value-Weighted World Index.
†EAFE is the MSCI index for Europe, Australasia, and the Far East.EuropeJapanWorld*EAFE†USACountry or
Region1970-
20061970-
19791980-
19891990-
19992000-
2006