Emerging markets used to be known as the markets you couldn't emerge from in an emergency. They are now mainstream. Consultants are recommending greatly increased allocations to take advantage of the hottest growth story of our times. Mutual fund investors are syphoning money from developed markets and pouring it into EM funds – just as 10 years ago they cashed out of “old economy” stocks to chase the dotcoms.

As always, companies and investment banks have no trouble in meeting the new demand. Emerging market IPOs have been running at double the cash value of developed market IPOs, in spite of the much smaller market scale. What's wrong with this picture? Plenty. Academic studies have shown there is no positive correlation between gross domestic product growth and stock market returns – if anything the correlation is slightly negative. Professor Jay Ritter of the University of Florida is the author of one study that has analysed 100 years of data from 16 countries. His conclusion is clear: “Countries with high-growth potential do not offer good investment opportunities unless valuations are low”.

The reason for this counter- intuitive finding is that you do not buy shares in the statistical construct known as GDP. You buy the shares of real world companies. In immature fast-growing economies, the companies that end up winning the struggle for survival may not even exist yet. That was certainly so in the case of Japan's economic miracle. In the 1950s there were more than 100 motorbike companies. The market leader, Tohatsu, was driven out of business by the cut-throat pricing of a flaky upstart called Honda.