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The roaring stock market rallies of the United States, Japan and Europe show no sign of reaching most emerging markets, where lackluster economic growth and company profits point to a fifth straight year of lagging performance.Emerging markets are the black hole in the global equity picture at a time when Wall Street has hit record highs, European stocks are at seven-year peaks and Japanese markets are at their highest in 15 years, buoyed by central bank money-printing and recovering economies.MSCI's emerging equity index, in contrast, stands more than 20 percent below record highs hit in 2007 and, despite notable exceptions such as India and China, it has lagged the world index by more than 50 percent since end-2010 .Because companies did not cut costs when growth and export markets soured, return on equity (ROE), a gauge of how efficiently a company uses shareholders' equity investment to generate profits, started declining in emerging markets after 2008 and has yet to recover.One of the few things that is working in the sector's favor is that stocks in MSCI's emerging index are cheap historically, trading at an average 11.6 times predicted earnings while developed equities are at nearly 17 times.
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