Emerging-market (EM) equities are off to a strong start in 2025, up 4.5% through March 14 in US-dollar terms. But investors could be excused for being wary. After all, emerging markets have struggled over the past decade.
Yet today, EM equity fundamentals are gaining momentum on the strength of upward-trending earnings estimates. And performance looks better from a longer-term perspective. Our analysis shows that, despite fluctuations, EM stocks have outpaced their developed-market (DM) counterparts since 2001 (Display). This long-term performance gap, coupled with the pratfalls of trying to time the market, makes it risky for investors to be on the sidelines, in our view—especially if emerging markets can sustain their recent gains.
Consider the cost: If an investor missed just 5% of their best-performing EM months since 2001—that’s just 15 months out of 290—EM equities would have underperformed DM equities by 3.0% on an annualized basis. Even missing five or 10 of EM equities’ best months during the 24-year period would lead to underperformance versus DM stocks. Bottom line: It’s better to stay invested.
Finding Strategies to Bolster Confidence
Of course, it won’t always be a smooth ride. But if you owned EM equities during their best- and worst-performing 15 months since 2001, they would have outperformed DM equities by 1.8% per annum. And our research shows that since 2001, EM equities have outperformed their DM peers by more than 3% per month slightly more often than they’ve underperformed by 3% per month.
To be sure, not all investors have long time horizons, and emerging markets do pose unique risks. Since it’s notoriously difficult to time the markets, we think investors should look for EM strategies that help bolster confidence to stay invested. These include portfolios that aim to offset volatility by deploying defensive strategies or by focusing on quality, profitable companies at attractive valuations. Given their long-term resilience and considerable potential to generate alpha, we think the time is right for investors who may be under-allocated to EM equities to give them a closer look.
