After a thorough ravaging of the emerging market equities, audacious investors may be intrigued by the prospect of a rewarding long-term investment that comes with a “half-off sale” in exchange traded funds (ETFs).
The emerging market equities asset class is offering attractive long-term risk premiums, write Rob Arnott and John West for IndexUniverse. It is noted that the asset class is cheap on both absolute terms and in relation to U.S. equities.
Long-term returns come from income, growth in income, and change in valuation. Because of higher economic growth rates in developing countries, it is reasonable to expect that emerging market countrieshave higher earnings than stocks of developed countries.
But there is a caveat with potentially higher earnings. Emerging markets are more inefficient because of “noise” or contagions, defaults, political crises and bubbles in a developing country’s market.