The faster the economy of a country grows, the better it is for that country’s stock market, right? Uh, not exactly. Click here to read the Economist’s summary of the work done by Elroy Dimson, Paul Marsh and Mike Staunton at the London Business School back in 2005. Over the 17 countries they studied, going back to 1900, there was actually a negative correlation between investment returns and growth in GDP per capita.
Emerging markets are doing great right now and that trend may persist for years. However, it would be incomplete to conclude that they are doing so solely because of growth in GDP. Supply and demand determine all prices. Prices trend. Investors who follow those trends in a systematic way can generate superior investment results over time. It is not necessary to get more complicated than that.
