While the shape of the recovery may be a matter of debate, everybody agrees it’s going to be different for different economies. The International Monetary Fund calls it a multi-speed recovery.

But if economies are going to grow at varying speeds, shouldn’t markets do the same? And since there is no dispute that the emerging economies are going to grow strongly while the developed world, especially Europe, is going to see slow growth, shouldn’t emerging markets do much better than the markets of the developed world? That was the reasoning that led to a surge of hot money to emerging markets in late 2007 and during the early stages of the current recovery. In the last three months, though, a glance at the MSCI indices will show that there hasn’t been much to choose between the performance of MSCI Europe and MSCI USA, in local currency terms. True, the MSCI Emerging Market indices have done better, but even they have been range-bound.

The trend is another confirmation that while emerging markets may outperform developed ones, the two are not decoupled. But that truth is a banal one, proved time and again in recent years. What matters is the degree of outperformance.

Illustration: Jayachandran/Mint

But perhaps the most important reason why the robust numbers for economic growth have not enthused the markets is because these have already been discounted. The V-shaped rise of the markets last year had already factored in a strong recovery. What the markets seem to be worried about, though, is what the future holds. There has been a lot of talk about a fundamental “reset" of the global economy and of a “new normal", both ideas suggesting that there are structural impediments to the resumption of strong growth in the developed world for many years, which will also hurt emerging markets. So while emerging market sell-offs are bought because of their robust economies, rallies are sold because of global weakness. That is why the markets have been range-bound.

What are the factors holding back markets? Tell us at views@livemint.com