Down a stunning 23%, London’s once mighty FTSE is trading like an emerging-market stock exchange

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Country A is home to one of the oldest stock exchanges in the world where the rule of law is rock solid, and investors are afforded rigorous protections.

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Country B is essentially a petrol state that ranks low on various financial freedom indexes. Its relatively recent transition to a market-based economy has been bumpy, and its embrace of democratic processes and norms has been widely criticized by human rights groups. Country B’s President, for example, recently changed the constitution to extend his rule by decades and is widely suspected of routinely poisoning his political foes.

And yet to investors, the two countries are widely indistinguishable. They’re both seen as a lousy place to sink your spare cash.

You’ve probably guessed Country B

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Top Emerging-Market Hedge Fund Steers Rout with Bullish Bets

For the past decade, developed-market stocks have mostly outshone emerging markets. But for Carrhae Capital, the Blackstone Group Inc.-backed hedge fund that’s handed its investors the best emerging-market equity returns among peers this year, the tide is turning.

Ali Akay, the London-based chief investment officer of Carrhae, expects returns on developing-nation equities to surpass those of the U.S. and Europe. Emerging markets didn’t fully benefit from low interest rates in the past decade and the potential for more stimulus, especially from China, should provide some support.

“We are optimistic on the trajectory of emerging markets,” Akay said in an interview. “Asset prices haven’t been juiced up as much. We just got through almost a decade of underperformance versus U.S. assets.”

EM stocks remain relatively cheap compared with U.S. peers

While the pace of recovery in emerging economies outside of China has been weak, growth will accelerate from the second quarter of next year as central banks feel little pressure

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