Faster economic growth means higher returns for investors. So much of the justification for investment in emerging markets.

The problem with this argument is that it is not true. Studies conducted by the London Business School looked at 17 countries over 108 years. Countries with a slowly developing economies (as measured by GDP growth over five years) returned 8% a year; markets in the fast growing economies, by contrast, returned only 5% a year.

With a broad group of 53 countries, including many emerging markets were considered, turtles beat hares by a wider margin-12% to 6-7%. James Montier of Société Générale found that slow-growing developing markets have transferred a higher income, faster than gardeners over the past 20 years.

Earlier studies, Jay Ritter of the University of Florida tried to explain to find key LBS-negative correlation between the real and stock returns, real GDP per capita growth for more than a century. Why this should be?

Mr. Ritter indicates that the economy could grow faster, applying more capital and more labor, in which case the owners of capital will not earn higher returns. What issues in stock returns, he says, is how much of the growth of the economy by reinvesting profits into investment, with net positive value in publicly traded companies.

But in emerging markets much wealth is now created in unquoted private companies (or, in some cases, government-owned company). Neither do investors in existing companies, quoted benefits.

Investors should also beware of argument that, as developing economies are becoming increasingly important role in the global GDP, so that emerging markets will take more weight in the global stockmarket capitalisation. This may be true, but much depends on how the new markets are becoming more important.

One way is to grow the value of the shares, while another is more shares will be issued. In the latter case, existing investors simply receive a smaller share more pie. Société Générale found this "dilution effect" worked at 2% per year in developed markets, but also staggering 13% per annum in emerging ones.

Worse, the expectations that higher growth will lead to higher income, actually works against the investor. This is because the markets assign a high price-earnings ratio (dividends and low power) for countries and companies, where future growth is expected to be strong. But there is a negative correlation between high estimates of future profits.

This may create a special problem for those investing in emerging markets at the moment. According-Montier, emerging markets trade on the back of price-earnings ratio of 22 and price-book ratio of more than 3, as a substantial premium to the markets of developed countries.

On a cyclically adjusted p / e basis (average income over 10 years), emerging markets trade on a few of the 40, next to their highest ever level and around that developed markets reached at the height of dotcom bubble. They are also trading around two standard deviations above its trend level, the measures described in previous characters, such as Japan in the 1980s.

None of this is to deny the importance of emerging economies. Boom in India and China will have an enormous impact on everything from wages of unskilled labour in commodity prices. But the simple equation that growth is more significant portion of profits to investors, simply not borne out by history.