Emerging-Market Equities: The Steep Cost of Missing Out

Emerging-market (EM) equities have shown promising growth in early 2025, with a 4.5% increase in US-dollar terms by mid-March, marking a potential turnaround after a challenging decade. Despite past struggles, the fundamentals of EM equities are improving, driven by upward-trending earnings estimates. Historically, EM stocks have outperformed developed-market (DM) equities since 2001, suggesting a long-term advantage that could be missed by investors who remain on the sidelines during critical growth periods.

Missing out on just a few of the best-performing months could significantly reduce potential gains, emphasizing the importance of maintaining investment in EM equities. Although the path is not always smooth, data indicates that EM equities have consistently outperformed DM equities over longer periods, reinforcing the value of staying invested through market fluctuations.

Given the difficulty of market timing and the unique risks associated with EM investments, strategies that bolster investor confidence are crucial. These include focusing on defensive strategies and investing in quality companies with attractive valuations. EM equities offer long-term resilience and substantial potential to generate alpha, making them a compelling option for investors who are currently under-allocated in this asset class.