Economic growth: Great for everyone but investors?

While it may be intuitive to assume strong economic growth translates into strong stock market performance, the evidence suggests otherwise.

Alex Bryan 25 October, 2016 | 5:00PM

By 2050 the world's population is projected to reach 9.7 billion, up from 7.4 billion today. Nearly all of that growth will come from emerging markets, where living standards are rapidly improving.

Although these markets have experienced large capital inflows, they still have a long way to go to match developed countries' levels of capital, productivity, and wages. Consequently, emerging markets will likely continue to grow faster than developed markets for the foreseeable future. While this growth may lift hundreds of millions out of poverty and spur investment and innovation, evidence suggests investors may be left behind.

Jay Ritter, a professor at the University of Florida, documented a negative relationship between economic growth and stock market returns in his seminal research paper, "Economic Growth and Equity Returns," published in 2005. Ritter's findings are no fluke.

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About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA, is director of passive strategies for North America at Morningstar. Before assuming his current role in 2016, he spent four years as an analyst covering equity strategies. He holds an MBA with high honors from the University of Chicago Booth School of Business.