Expected returns on equity in emerging markets were consistently higher than those in mature markets, and their volatility was slightly below that of the mature markets, indicating high risk-adjusted returns (IMF 1998, p. 32). Equity and stock prices were also performing strongly (IMF 1998, p. 38).
Growth and foreign investment certainly went hand in hand, although it might be noted that there was a stronger relationship in the 1980s than during the 1990s.4 Of course, on top of these potential returns, there was also a question of exchange rate expectations, and we will return to this issue when we look at reasons for the volatility of flows.