A country’s gross domestic product is a notoriously poor proxy for stock market returns, so last year’s 30% growth in the S&P500 – achieved while the US economy grew by 1.9% – has left investors scratching their heads.

Some of the gains were achieved by share buy-backs, and irrational exuberance may also have played a role. But at the core of the US story has been firms’ ability to widen margins, producing healthy earnings growth despite modest increases in sales.

Since 2010, developed market firms have performed this type of alchemy much better than their emerging market peers.

The right-hand graph above shows how DM firms have increased earnings (as a proportion of GDP, orange line, right-hand scale) despite the slowing of real GDP, which takes inflation into account. By contrast, their EM peers have struggled to buck the trend of slowing real growth (left-hand graph).

But there are exceptions to every rule, and companies that are growing margins offer opportunities in the region. One such stock, identified by Devan Kaloo, head of global emerging markets at Aberdeen Asset Management, is Thai conglomerate Siam Cement. In fiscal 2013 its sales grew by a respectable 7%, while profits increased 56%. The chemicals business made the largest contribution: here profits grew despite declining volumes.
 Overall, Siam’s Ebitda margin increased from 10.7% in fiscal 2012 to 15.4% in fiscal 2013.

Siam trades on 13 times fiscal 2013, making it relatively inexpensive. Elsewhere, some of the value opportunities in expanding-margin firms look to have been taken. Last year Magnit, a Russian retailer operating discount supermarkets, grew profits by 38% on sales of 26%. With the share price now standing at 21 times 2013 earnings, this is expensive (although Kaloo believes its long-term value remains).

Firms that are expanding margins could soon reap a second benefit if EM exports recover, as suggested by the stronger growth figures posted by the US and, more recently, the eurozone. Kaloo says increased DM demand has not yet been reflected in growth figures for EM exports – which have slumped since 2010 (see figure, right).

Profitability – as measured by return on equity – is, after all, still marginally higher for EM than DM companies (despite having fallen from an impressive 3% premium in 2011).

Kaloo believes export resurgence will happen in the second half of this year, marking the end of what has been a cyclical – not structural – slowdown in developed markets. If so, it will be the first surprise on the upside for some time, meaning current low valuations are good buying opportunities.