War in Ukraine, indirect inflation, interest rates, China’s slow economic recovery, supply chain fragility, trade tariffs, and geopolitical tensions have joined rank with higher global taxation and continued monetary tightening. In 2024, developed economies continue on a low-growth, low-return curve.
Following a decline in 2023, earnings growth anticipations for 2026 have moved higher for emerging economies compared to developed economies, including the United States, with returns for MSCI EM Markets at 33 per cent for 2025.
Emerging economies’ debt and equity is one of the most mispriced asset classes, with between 3 and 8 per cent of global investments allocated to emerging economies equities. At a discount rate of 30 per cent, emerging economies’ valuations remain inexpensive compared to developed economies. The discount may narrow in the next years, due to stronger earnings growth, recovering profitability, and a higher economic growth premium in favor of emerging economies. Allocations could become much higher between 20 per cent and 30 per cent, due to emerging economies’ growth potential and market inefficiencies.
