In this report, we discuss the attractiveness of Emerging Market equities based on valuation criteria. We also show that Alternative EM is a better option for diversification purposes, since it preserves the performance of EM while significantly reducing the volatility.​
Philippe Ferreira
Head of Research – Managed Account Platform
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In this report, we discuss the attractiveness of Emerging Market equities based on valuation criteria. We also show that Alternative EM is a better option for diversification purposes, since it preserves the performance of EM while significantly reducing the volatility.​
- Emerging Markets (EM) will soon represent 40% of world GDP. However, they barely represent 10% of global equity indices. Benchmarked portfolios are therefore structurally underweighted in EM equities compared to their size in the globaleconomy. This gap appears unwarranted.
- The incomplete integration of EM into world markets and their relatively small equity market capitalisation creates potentially attractive investment opportunities. Nevertheless, EM equities have disappointed over the recent years, underperforming developed markets (DM) equities. Six years after the demise of Lehman Brothers, EM equities are trading at a 40% discount to DM equities.
- The case for Alternative EM as diversifiers: since correlations between EM and DM equity returns rose during the last decade, diversification benefits are a less compelling story for investing in EM through long-only vehicles. We nevertheless can show that actively managed strategies can still profit from EM diversification. Alternative EM funds have been able to preserve the outperformance of EM assets over the last decade while reducing the volatility.​
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