Egyptian stocks topped returns on emerging equity markets in the first six months of 2012 with a rise of 30 per cent, well above the broader MSCI emerging stock index, where spectacular first quarter gains crumbled under the impact of the euro crisis.
MSCI's dollar-based emerging equity index has fallen 1 per cent in the first six months of 2012, after dropping more than 20 per cent in 2011.
The index rallied 13.6 per cent in January-March, its best first quarter performance since 1992, but surrendered these gains as Europe's debt and banking crisis spread and investors worried about Chinese and U.S. growth.
"It's been a difficult environment for emerging markets...a case of risk-on and risk-off," said Jeff Chowdhry, who helps manage $4.5 billion in emerging equities at F&C Investments.
"In the next six months, the euro crisis will continue to cast a shadow over the asset class so I don't expect any sustained rally unless we get some resolution."
The index lags MSCI's world index as the second year in a row. But it hides sharply diverging performances.
Egypt's strong rally after Mohamed Mursi became the country's first democratically elected president has made it the best performing emerging equity market, with gains of 32 per cent. However, it is yet to entirely recoup its 2011 losses.
Near the bottom of the pile is Brazil which has fallen more than 12 per cent this year as the economy slows dramatically. Performance in the other three BRIC indices is also lacklustre.
Chowdhry said that while valuations are attractive, at a 20 per cent discount to developed peers, the sector is also being hurt by worries over slowing growth within the developing world.
"It's a mixed message. It's good that interest rates and inflation are coming down but investors are worried about a slowdown in economies and earnings," he added.
Nowhere is that more true than in the BRICs.
China has cut 2012 growth targets to 7.5 per cent, which if realised, would be the lowest since 1990, while India shocked with first quarter growth of just 5.3 per cent, a nine-year low.
Brazil and Russia will be hit by weaker commodity demand.
The MSCI BRIC index has fallen 5.3 per cent, reflecting also investors' worry about the slow pace of reform.
"Of the BRICs, only China is really attempting to implement market-friendly measures, the success of which is far from assured," Deutsche analysts said in a note.
China's slowdown, with its implications for the oil price, has helped feed the divergence in emerging markets performance.
MSCI Russia has fallen 1 per cent. But the local dollar-denominated index has lost 10 per cent as oil prices, Russia's lifeblood, have declined $18 per barrel since end-2012.
"Sub-$80 oil is a game-changer (for Russia), the macro-picture becomes more problematic," said Andrew Howell, head of CEEMEA equities at Citi.
But the oil price decline benefits the energy importers of Asia and central Europe.
Turkey, up 21 per cent, is one of the stars of 2012 as the falling oil prices ease worries over its current account gap. South African shares too hit a record high last week though in dollar terms, gains are less impressive.