Of course, valuations alone will not ensure strong equity market returns if there is no improvement in the underlying economic climate. However, markets are discounting mechanisms and tend to rise in advance of actual economic recovery. Emerging markets have been one of the more responsive asset classes in discounting economic change. We saw this in Mexico in the mid-1990s, when the stock market recovered well in advance of the actual turnaround in the economy and currency.

While the prospective economic recovery in the developed markets is likely to be more drawn-out and less active in the early stages than in past recoveries, the emerging markets are likely to gain significantly from a discounting of world economic recovery. This could start within the next 6 to 12 months, based on historical precedent.

In addition, areas within the emerging markets are actually among the few pockets of potential strength in global growth. Ironically, some of the currently stronger economic growth prospects would be the former command-and-control economies of China, Russia and central Europe. Most of the developed economies appear to have uncertain prospects for next year, especially the U.S. and Japan. The emerging markets, in contrast, appear better poised to recover, having experienced the downturn earlier and in many cases more severely than their developed counterparts.