The case for Emerging Market Equities

Varun and Archie discuss the case for emerging market equities. The past decade could be characterised as more risk than return for emerging markets. But that may be about to change, with policy change in China is the key to unlocking it all.

11 May 2023

8 minutes

Varun Laijawalla
Archie Hart

The fast view

  • The past decade could be characterised as more risk than return for emerging markets.
  • Two structural headwinds in the form of US exceptionalism and Chinese net issuance played significant roles in that underperformance. These are unlikely to repeat.
  • The case for investing today in our view is compelling. The asset class has mean reverting tendencies, which, combined with a potentially weaker US dollar, makes it an interesting proposition.
  • Emerging market equities are cheap today versus history and the quality of earnings is as strong as it has been in recent times.
  • We believe the drastic reversal in Chinese policy could be the missing link to kick start a revival in fortunes for the asset class.

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General risks. All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results. Environmental, social or governance related risk events or factors, if they occur, could cause a negative impact on the value of investments.

Specific risks. Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic, or other systems. Geographic/Sector: Investments may be primarily concentrated in specific countries, geographical regions and/or industry sectors. This may mean that the resulting value may decrease whilst portfolios more broadly invested might grow. Equity investment:The value of equities (e.g., shares) and equity-related investments may vary according to company profits and future prospects as well as more general market factors. In the event of a company default (e.g., insolvency), the owners of their equity rank last in terms of any financial payment from that company. Commodity-related investment: Commodity prices can be extremely volatile and significant losses may be made.

Authored by

Varun Laijawalla
Archie Hart
Emerging market equities - latest insights

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