The author is Chief Global Strategist at Morgan Stanley Investment Management and author of Ten Rules for a Successful Nation

After their worst decade since the 1930s, emerging equities as a whole continue to underperform in 2021, deepening the isolation surrounding this massive asset class. So it will surprise many that 8 of the top 10 performers and 13 of the top 20 in 2021 are in developing countries.

How can this add up? Given its size, China dragged down emerging market indices.with Beijing blow Stocks in the country were hit hard by its big tech companies and self-isolation in the name of economic self-reliance. Last year, China was the second-worst performing market globally, ranking 58 out of 59 countries, behind Pakistan.

Every region lags the U.S. as investors pour money into U.S. tech giants. However, excluding China, emerging markets grew by 10%, in line with returns in the rest of the world outside the United States. This could herald a quiet comeback.

Money tends to flow into the fastest-growing economies, especially those that fall out of the group. At the peak of the boom in 2009, emerging economies grew more than 5 percentage points faster than advanced economies. In 2020, that lead has shrunk to 1 percentage point, which largely explains the bleak decade for emerging equities.

Last year, however, signs of a recovery outside China began to emerge, fueled by rising commodity prices, strong manufacturing in some countries, rapid growth in the digital economy and relative financial conservatism by emerging world leaders. Exporters have been boosted by the biggest annual rise in commodity prices in nearly half a century in 2021. Among the top 20 hottest markets, major oil majors include Saudi Arabia at No. 9 and Russia at No. 19, with 20% growth for the year.

Despite the global decline in manufacturing, it remains an important source of growth for a small number of emerging countries that are on the rise Factory leaves China Seek lower business costs. Among the top markets for 2021, manufacturing powerhouse Czech Republic ranks second, Vietnam ranks 15th, and Mexico ranks 18th.

In the 2010s, the era of deglobalization saw the flow of people, capital and trade slow, while data traffic continued to explode, with emerging countries growing fastest. Among the top 20 stock markets driven by the ongoing digital revolution, Taiwan ranks 13th and India ranks 14th.

Despite these signs of revival, Many commentators worry The central bank’s plan to slow the pace of monetary stimulus will trigger a retreat in risks, including in emerging markets, as happened during the 2013 taper tantrum. But today there is a big difference.

Global investors have pulled money out of emerging markets in most years since 2013, reducing the threat of capital flight now. During the same period, most large emerging markets have become more financially stable, not less. Currency prices are more competitive. Foreign exchange reserves are large. Most emerging powers avoided the main risk – borrowing heavily from foreigners. The current account balance, which reflects the country’s need to borrow abroad to finance its purchases, has turned into a surplus.

The focus now on emerging market vulnerabilities is the rise in average debt levels, but these averages again distort reality, distorted by China. After the 2008 financial crisis, China absorbed 70 percent of debt to the emerging world; during the pandemic, that proportion has risen to more than 80 percent.

In most other large emerging countries, households and businesses have barely added debt, and government debt accumulation is not as large as in its Chinese counterparts. Total debt, including government, corporate and household debt, has exceeded 24% of China’s GDP since 2019, well above the emerging market median, be it India, Indonesia, Mexico, Egypt or South Africa.

Global media tends to focus on troubled cases like Turkey, but markets appear to be feeling a broader shift towards relative financial stability in many major emerging countries. While economists are often one step behind, they also expect emerging countries to start reasserting their growth leadership over developed countries in the coming years, according to consensus forecasts.

If the fundamentals driving commodities, manufacturing, data flows and economic reform remain intact, 2021 could be remembered as the year emerging markets began to recover, even if it wasn’t widely recognized at the time.