EXECUTIVE SUMMARY 

The decade-long run of outperformance enjoyed by emerging market equities in the early 2000s came to an end as global growth slumped following the Global Financial Crisis (GFC). With emerging market economies experiencing an even more pronounced post-GFC slowdown, emerging market equities became hindered by margin compression and currency headwinds. The impact of these conditions has lasted longer than anticipated, so while emerging markets have historically been favored due to their relative inefficiency and low correlations to developed markets, asset owners haven’t been rewarded for their emerging markets allocations for quite some time until recently.

While timing asset class allocations is notoriously difficult, we believe now is a good entry point for long-term investors to consider a more constructive position on emerging markets even with the recent rally. Our perspective is anchored in three key pillars:

• Historic Valuation Opportunity: The valuation differential between emerging and developed markets is now at its most extreme since the dot-com era, sitting over one standard deviation cheaper than historical norms—creating a compelling entry point.
• Future Growth Expectations: Buoyed by favorable demographics and a growing middle class, emerging markets’ contribution to global economic growth will continue to rise. Improvements in corporate governance will help translate GDP growth into corporate earnings growth.
• Macro Tailwinds: Lower than expected inflation and the current interest rate cutting cycle have already reduced demand for the US Dollar. Coupled with a resilient global economy, emerging markets equities are poised to benefit from these tailwinds.