Five years since the market meltdown in 2007, investors are yet to register a profit on their old investments despite the global stock market rally of 2012.

The MSCI World Index is down 16 per cent from the peak recorded at the height of 2007. Markets in Europe are responsible for this under performance with the MSCI Europe losing 25 per cent over the last five years. It is not surprising that losses in this region were led by MSCI Greece Index that lost 92 per cent from its peak in 2007.

Emerging Asia has, however, bucked this trend with markets in countries such as Indonesia, the Philippines and Thailand delivering strong returns over the last five years, gaining between 33 and 45 per cent. India failed to keep pace with its buoyant peers, the MSCI India index was down 10 per cent in this period.

Surprise rally

An investor who bet on stocks at the start of 2012, however, would have made money, irrespective of the region he invested in.

Equity markets across the globe have delivered good returns in 2012 with Indian equity markets ranking among the out-performers.

But unlike the rallies of the past, emerging markets did not beat developed markets by a big margin.

MSCI world index has registered 12 per cent gains since the beginning of January to December 14 with only a handful of country indices currently in the red. This is despite concerns on slowing global economic growth in many regions and never-ending debt troubles in the Euro Zone.

There was a sharp sell-off in most markets following Standard and Poor’s downgrading US credit rating one notch lower in August. But the rebound was equally quick. Emerging markets could not live up to their reputation of being high-beta markets that deliver big out-performance in rallies. Gains in MSCI emerging market index was barely 2 percentage points higher than the MSCI World Index.

Sharp polarisation was seen between the various emerging regions too. While the EMs in Latin America and BRIC countries gained less than 10 per cent, Emerging Asia and Europe gained 17 per cent. Strong economic growth and a reform-oriented government helped MSCI Philippines index gain over 40 per cent. Turkey, the other strong gainer among emerging markets, surged on foreign investors pouring money into its banking and consumer goods stocks. MSCI India with 27 per cent gains is among the strong performers in this group. Brazil and Czech Republic were the countries that delivered negative returns.

Investors did not seem unduly worried about the credit troubles of European nations as MSCI Europe Index has rallied 13 per cent so far this year.

While stock indices of beleaguered countries such as Greece and Spain delivered negative returns, it was made up by strong performance of German, Danish and Belgian stocks. MSCI USA gained a modest 12 per cent as the US Presidential elections and the impending spending cuts and hikes in taxes kept stocks on a leash in the later part of the year.

Investing in frontier markets in Africa has paid well for investors with this index gaining 35 per cent.

The rally this year has not made stocks too expensive as most global indices are trading at price earning multiples that are below the levels recorded in 2007.

Stocks cheaper

According to Bloomberg, the Sensex is cheaper than the indices in other emerging Asian countries such as Thailand, Taiwan and the Philippines.

The premium that emerging market indices enjoyed over the developed market indices in the US, France, Germany and so on has also narrowed considerably. Continued underperformance of Chinese stocks has brought down the valuation of the Shanghai Composite Index to 12 times trailing earnings.

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