The next cycle in global equities may favor Emerging Markets for outperformance

From Investing.com: 2025-07-02 00:23:00

The current market conditions suggest that Emerging Market (EM) equities may start outperforming Developed Market (DM) equities due to several key factors. EM equities are trading at a significant valuation discount compared to DM equities, with investor allocations to EM equities well below average. Additionally, EMFX looks cheap and is turning up from a long downtrend, which will help EM equities outperform. Investor sentiment is still skeptical towards EM equities, despite positive indicators such as EM central banks stimulating their economies. Long-term investors should reconsider their global equity allocations, with a focus on global diversification and increasing exposure to EM equities.

Bonus Chart 1 shows that investors have a low implied allocation to EM equities, with mutual fund investors at ~3% and ETF investors at 4%. This is significantly lower than previous years and well below the global market cap weight of EM equities. Bonus Chart 2 reveals that EM equities’ global market cap weight is below trend, presenting a potential opportunity for investors to capitalize on the undervaluation. A shift in the decadal cycles of relative performance in global equities may be on the horizon, offering a unique investment opportunity for those willing to reallocate towards EM equities.



Read more at Investing.com: Why the Next Cycle in Global Equities Could Belong to Emerging Markets