为什么新兴市场的股票值得买入(4)

Also, their government debt loads, generally averaging less than 50% of GDP, are far less burdensome than those of many major economies, including Japan (253%) and the United Kingdom (85%).

And emerging markets hold 80% of the world's people. Both Research Affiliates and GMO predict far higher future returns in emerging markets compared with U. S. stocks, despite the volatility.

Both point to a gap in valuations that's unjustified by fundamentals. The best measure, they say, is the cyclically adjusted price-to-earnings ratio, or CAPE, developed by Yale economist Robert Shiller.

It uses a 10-year average of inflation-adjusted earnings as the denominator, correcting for temporary peaks and valleys in earnings. Today, the CAPE for the S&P 500 stands at 31.1, vs. 12.5 for emerging markets.

"That means emerging-market stocks are 60% cheaper than U. S. stocks," says Arnott. Earnings growth of 3.8% in emerging markets is just a bit better than in the U. S. , says Research Associates.

In part, that's because big companies headquartered in those countries face competitive factors similar to those of the U. S. and European giants. But dividend yields of 3.1% are well above the 1.9% offered by the U. S. benchmark S&P 500. (Yields reflect dividends as a percentage of prices. )

Then there's the lure that so many emerging-market stocks are so darn cheap. Rising valuations, says Brightman of Research Affiliates, should add another 1% a year.

Add all the components, and emerging-market stocks should return around 10% annually over the next decade. Research Affiliates' forecast for the U. S. : 2.6%. GMO is less optimistic but believes a 5.2% annual return is probable.

Still, it thinks U. S. stocks, hit by a steady contraction in valuations, will fare miserably, saddling investors with average annual losses of 3.2% through 2025. Those rich emerging-market returns come at a price-a performance chart that careens from sharp spikes to jolting drops.

According to Research Affiliates, emerging-market stocks are 50% more volatile than U. S. equities. In two-thirds of all the months you own them, you can expect 6% swings to be normal. That's a lot of lurching around.