Emerging markets were among the best performing stock markets in the first quarter of this year, says Merrill Lynch.

The top-performing bourse over the past three months was Argentina’s. The Merval rose 47.65% over the quarter. Russia remained in second position with a 34.88% gain for the first quarter of this year. Korea ranked third overall.

Canada came in 22nd in the Merrill ratings, down from 21st in 2001. That’s well off of our fifth place standing in 2000. Germany and Japan ranked just ahead of Canada, whereas France and the UK came just behind. The U.S. ranked 28th, with the S&P recording a -0.6% return for the quarter.

“Overall, 27 of the 38 markets that we surveyed posted a positive return,” says Walter Murphy, senior international market analyst at Merrill Lynch. “This was the second quarter in a row that a majority of the markets gained ground. The last time that happened was two years ago.”

While the emerging markets dominated the top of the list, major markets also recorded solid returns. Murphy notes that 15 of the 21 major market indexes in the survey rallied in the quarter. That differs from 2001 when only four major markets were higher for the year.

“As a result of this strength in the larger markets, equities outperformed bonds. This is reflected by the fact that our seven-country relative strength index indicated that stocks outperformed bonds by 8% during the quarter. Since momentum for stocks appears to be oversold compared to bonds, we expect stocks to outperform bonds on balance in the months immediately ahead,” says Murphy.

“At the end of 2001, we felt that the improvement that was then evident in equities was a sign of things to come,” he added. “That is still our view. If the global bottoming process that began in the fourth quarter of last year is as legitimate as we think that it is, then stocks are likely in the early stages of a broad based bull market rally.”

“In our view,” says Murphy, “the momentum underpinnings are now strong enough to suggest that the current long term uptrends for a majority of the 38 markets are in position to remain in force through most, if not all, of 2002.”