The authors test whether emerging markets investors should care more about GDP growth or corporate earnings growth. Across 15 emerging markets, the paper finds GDP growth is a weak guide to returns, while EPS and dividend growth are much more useful.
What Matters More for Emerging Markets Investors: Economic Growth or EPS Growth?
Jay Ritter, Jason Hsu
Research
15 Pages
Key Takeaways
GDP Is Weak: Across 15 emerging markets from 1988 to 2019, the correlation between real stock returns and real per capita GDP growth was just 0.17.
EPS Matters More: For 15 emerging markets, the correlation between real stock returns and real EPS growth was 0.53, versus 0.27 for GDP growth.
Listed Firms Lag Economies: In many emerging markets from 1996 to 2019, EPS growth was negative even as per capita GDP growth remained positive.
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