Current emerging market investors should be reminded that just over a century ago the United States was still considered by the rich Europeans as a large emerging market. Investing in the U.S. was quite a risky venture. Financial fraud was rampant and default commonplace. Even the state of Mississippi defaulted on its bonds. After raising capital in Europe, many business promoters would return to the U.S. and were never heard from again. The country was vast and transportation was poor. It would take several weeks of travel across the ocean for a European investor to come to the U.S. to check out his investments. The frontier was wild and lawless. A global bargain hunter in the U.S. sometimes needed to be a sharp shooter, literally, in order to get the return for his money. However, despite the huge risks, the United States emerged as the most powerful economy in the world, and investors earned generous real rates of return even after factoring out inflation.

By the same token, thirty years ago, Japan's economy was also an emerging market (or re-emerging market to be more precise, since its development was interrupted by World War II). After a devastating war, most of the country's physical capital was destroyed and the economy had to be built from ground zero. Short of oil and many other natural resources, Japan had to rely on foreign trade for its economic development. However, through hard work and creativity, Japan produced an economic miracle that put it quickly in the league of developed nations. A $10,000 investment in the Japan Fund in 1962 would have grown to approximately $1.5 million at the beginning of 1997, despite its lackluster performance in the early 1990s. This clearly demonstrates the point that while it is reckless to ignore the huge risks, it is equally irresponsible to ignore the growth opportunities in emerging markets.

Today, on the eve of the twenty-first century, as we survey the broad landscape of emerging markets, we find that the prospects for potential gains from the world's emerging economies are as good as at any other time in history. We are convinced that emerging markets will generate extremely generous returns for long-term investors, due to the market over-reaction to the recent market crisis. At the same time, investments in emerging markets may well yield tangible improvements in the everyday lives of billions of people around the world who must currently contend with difficult economic and social conditions. A narrowing of global economic disparities may, in turn, help to propel the world into a more peaceful and prosperous new millennium.