After more than a decade of dominance for the US market, investors may be wondering what happened to the once promising asset class of emerging markets equities. For a number of reasons, investors may now want to consider emerging markets, according to new research from Morningstar Indexes.
The Morningstar US Market Index has nearly tripled in value over the past decade while the Morningstar Developed Markets Index is up about 2.4 times. The Morningstar Emerging Markets Index, by comparison, is only up about 1.5 times during this time period. US strength, Chinese weakness, a commodity downturn and other factors have all contributed.
So why bother with emerging markets today? Morningstar Indexes Strategist Dan Lefkovitz, author of the research, suggests a number of factors including attractive valuations driven by low expectations for emerging markets, the growth of India, the energy transition, and a potentially oversold China. This is in addition to the diversification benefits of allocating a portion of one’s portfolio to emerging markets equities.
A Not-so-Fab Decade for Emerging Markets Equities
Dan Lefkovitz – Strategist, Morningstar Indexes
“It seems like a distant memory when emerging markets equities traded at a premium to their developed markets counterparts. Sure, they hold diversification benefits, but that’s cold comfort for investors who’ve experienced them as a persistent drag on portfolio returns. The possibility that the cycle could turn again and emerging markets reemerge makes them worthy of investor consideration.”
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