The best evidence for this is that their returns have become more similar. In the mid-90s the correlation between monthly returns on MSCI's emerging markets index (in sterling) and the FTSE mining sector was often under 0.4, implying that the two assets would occasionally move in opposite directions. In the last five years, however, the correlation has been almost 0.8, meaning the two usually move together.
And for large moves, the two almost always rise and fall together. Since January 2008 there have been 14 calendar months when mining shares fell more than 5 per cent. In 13 of these 14 months emerging markets also fell, by an average over all 14 months of 6.2 per cent. And during this time there have been nine months in which emerging markets fell f5 per cent or more. Miners fell every time, by an average of 11.4 per cent.
The story is the same for big rises. Since January 2008 there have been 14 months in which emerging markets rose more than 5 per cent, the average rise being 9.2 per cent in these months. In all 14 months, miners rose, by an average of 11.2 per cent. Similarly, there have been 16 months in which miners rose more than 5 per cent, the average rise being 12 per cent. In all 16, emerging markets also rose, by an average of 7.3 per cent.
In one important sense, then, miners and emerging markets are pretty much the same asset. They are both plays upon economic growth in emerging markets. Optimism about this - which usually accompanies optimism about shares generally - not only raises emerging market shares but also expectations about commodity prices, which boosts miners.
What's more, this increased correlation has been accompanied by higher volatility, which means that investors holding both miners and emerging markets have seen a big rise in the riskiness of their overall investments. The correlations and volatilities we've had in the last five years imply that a portfolio split 50:50 between emerging markets and miners has a one-in-nine chance of losing 10 per cent in a month. In the first half of the 90s, it had only a one-in-33 chance of such a loss.
Herein, though, lies a difference between miners and emerging markets. This increase in volatility is due entirely to miners' greater volatility. Emerging markets have actually been less volatile in the last five years than they were in the previous 15, even though equities generally have become riskier during this time.
Relatedly, the beta on miners (with respect to the All-Share index) is higher than it was in the 1990s and early 2000s, while that on emerging markets is lower. Based on monthly returns in the last five years, miners have a beta of 1.7 compared with 1.2 for emerging markets.
This is consistent with emerging markets maturing. Whereas they used to be highly speculative growth stocks, they now also include some larger, staider, more defensive shares.
This brings us to a curiosity. If you want speculative, high-beta exposure to emerging markets' growth prospects, mining stocks fit the bill better than emerging markets equities do themselves. In this sense, mining stocks are the new emerging markets.
