The Rise of Emerging Markets and Asia

Shuo Xu

Performance leadership has rotated significantly within emerging markets (EM) during the past two decades. Fundamental data — such as index-level price-to-earnings (P/E) ratios and earnings-per-share (EPS) growth — could help identify drivers of performance trends among countries and subregions. Since 2010, for example, EM Asia has persistently outperformed overall EM; and valuation metrics shows that the outperformance during 2010-2017 was mainly driven by EM Asia’s EPS growth, as the region’s P/E ratio declined relative to overall EM, whereas the outperformance since 2017 was mainly driven by reversion of its relative valuation. Separately, countries with low P/Es have tended to outperform those with high P/Es.

Equity-Market Size May Not Reflect the Underlying Economy

Wei Xu

The size of a given stock market within emerging markets (EM) is not always aligned to the corresponding country’s economy. Since 1994, for example, the market-capitalization weights of Malaysia, Mexico and Brazil declined as a percentage of the MSCI Emerging Markets Index. By comparison, their changes in economic weight were less drastic. While Taiwan and Korea received higher weights in the MSCI EM Index than the sizes of their economies, China's market-cap weight in the index rose steadily and only recently caught up with its GDP share.