Rethinking Three Misconceptions About Emerging-Market Equities

Emerging-market equities have a bad rap. But a lost decade may have set up promising conditions for a recovery.

After a difficult year in 2023, we’re seeing signs that a recovery may be brewing for emerging-market (EM) equities. For investors to regain confidence, it’s important to revisit some common assumptions about EM stocks with a critical eye.

It’s easy to understand why investors are struggling to warm to EM. The MSCI Emerging Markets Index rose 9.9% in US-dollar terms in 2023, trailing far behind the S&P 500, which rallied by 26.3%. Last year’s returns capped a decade of weak performance that cemented negative investor sentiment toward EM equities. But we think some of the biggest concerns are rooted in misconceptions.

Misconception #1: US Stocks Always Beat EM Stocks

Some investors may be surprised to discover that US and EM stocks have delivered similar annualized returns since the inception of the MSCI EM 23 years ago (Display). Since 2001, the S&P 500 and the MSCI EM posted annualized returns of about 7.8% and 7.6% respectively—stronger performance than developed markets outside the US.

Of course, EM equity markets have delivered disappointing returns over the last 10 years. But rewind further to the first decade of the 21st century, and EM stocks outperformed the S&P 500 by a wide margin. Over the longer run since 2001, EM stocks have outpaced the MSCI World.

Emerging-Market Stocks A Long-Term Lens Reveals a Different Picture