By Mike Lenhoff 29/10/2007 16:31

When it comes to investing in equities, anyone who doubles their money in a four and half year span is doing well. As the chart shows, FTSE’s All-World Developed Markets Index has doubled in value since the Spring of 2003.

Those who bought into emerging markets from the start of this bull market would have more than doubled their investment. FTSE’s Emerging Markets Index has nearly quadrupled over the period. This makes the performance of the developed markets look pedestrian when in fact it has been anything but.

Who’s going to complain about an annualized capital gain of nearly 17 percent, which is what the developed markets have delivered. The 34 percent annualized gain for emerging markets would not have come without a fair degree of volatility and the gains might not have even been accessible in the first place.

Volatility has been a key feature across the board this year. But in spite of the summer’s upheaval - not to mention the correction that took place back in February - equity markets are not only up on the year but also higher than many thought likely two months ago. Emerging markets have gained 35 percent this year - just an average year’s capital gain for this bull market - while the developed markets have gained about 8 percent. In sterling terms, the latter are up by 7 percent; in US dollar terms they are up by over 12 percent.

Investors can be forgiven for feeling overwhelmed by the speed of the recovery from the August lows but that is interest rates for you - US interest rates. The Fed is committed to providing liquidity and is gearing policy to an economy’s momentum that is being worn down by a weakening housing market. Default risk is on the rise and therefore the Fed is likely to keep on cutting rates.

So long as the valuations remain satisfactory, which they do even allowing for some earnings downgrading, equity markets are likely to continue climbing. In fact, it is surprising that, given their stunning performance, the valuations for the emerging markets aren’t a lot less appealing than they look. As the chart below shows, these markets aren’t cheap but prospective p/e ratios are not near the boundaries of what might be considered expensive. They are trading just below the historical average for the period shown.

As for the major equity markets, the higher they go the more we’ve been saying how they sell on similar prospective p/e ratios to what they sold at the start of this bull market. In their rocky journey to new all-time highs, the major equity markets display none of the valuation excesses of the dot com boom.

* The information contained in this report has been taken from public sources and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The opinions expressed in this document are not the views held throughout Brewin Dolphin. No Director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents. We or a connected person may have positions in or options on the securities mentioned herein or may buy, sell or offer to make a purchases or sale of such securities from time to time. In addition we reserve the right to act as a principal or as agent with regard to the sale or purchase of any security mentioned in this document. Prices, values or income may fall against the investor’s interests. You should therefore be aware that you may get less back than you invested. Past performance is not a guide to future performance. If you are in any doubt concerning the suitability of these investments for your portfolio, you should seek the advice of a qualified investment adviser.