Income investors are increasingly endangered by U.S. monetary policies that keep interest rates at zero and drive asset prices to nosebleed levels.

Thus, we need to look all over the world for assets that pay decent returns and aren’t too expensive.

Emerging market shares fit this bill.

And while they have their downsides, I’d argue that in today’s environment they represent a better risk-return balance than the shares of companies in the United States, Europe, or Japan.

The major advantage of emerging markets is that they tend to grow faster than developed markets. The International Monetary Fund projects that the real gross domestic product (GDP) of advanced economies will grow by 2% in 2015 and 2.2% in 2016, while emerging markets will see growth of 4% in 2015 and 4.5% in 2016.

And that’s during a period when many emerging markets have suffered badly from the price decline in commodities and energy.

At a price-to-earnings (P/E) ratio of about 20, you’re paying too much for too little growth in the United States and other advanced economies.

Meanwhile, in emerging markets you’re generally paying lower multiples and getting more growth.

Emerging Market Arbitrage

There’s one simple reason for this disparity: arbitrage between emerging market labor markets and those of the West.

Before 1800, there weren’t vast differences in wealth between different parts of the world. For example, medieval China was richer than medieval Europe.

However, the Industrial Revolution enabled Europe and the United States to gain immensely in wealth, while the primitive transportation and communication of those times prevented the wealth from spreading rapidly to the rest of the world.

Japan and the Far East caught up in the 1960s and 1970s, but the real revolution has come with modern telecommunications and the internet, which have enabled poor countries to join global supply chains.

This has caused a continual arbitrage between advanced country and emerging market wage rates, where the differential between the two tends to narrow over time.