Long-Term Investing in Emerging Markets: Identifying Drivers of Total Shareholder Return in Emerging Market Equities

Emerging-market (EM) stocks have been central to global equity allocations since the 1980s and outperformed their counterparts in the developed markets (DM) in the years leading up to the 2008 global financial crisis (GFC). Since 2009, however, the opposite has been true, with EM underperforming DM by almost 5% annually. Certain EM stocks, however, have bucked this trend. Drawing on nearly 30 years of index- and stock-level returns, and leveraging a new MSCI equity factor model, we identified shared fundamental attributes — profitability, stable cash flows and disciplined capital allocation — of these "long-term compounders."

Additionally, we found a disconnect between topline economic growth and per-share returns. Despite a rising share of global GDP and a larger universe of listed securities, EM stocks' underperformance after the GFC has been largely attributable to persistent share dilution and sagging profitability.

Our findings suggest opportunities for investors. Because analyst coverage is lower for EM stocks, active and fundamental managers have the potential to uncover mispriced compounders based on key fundamental metrics. Managers of systematic or index-based strategies may consider tilting toward profitability, high dividend yield, modest dilution and stable earnings.

©2025 With Intelligence. Republished with permission from the Journal of Beta Investment Strategies, from: Anil Rao and Rohit Gupta, “Long-Term Investing in Emerging Markets: Identifying Drivers of Total Shareholder Return in Emerging Market Equities,” Journal of Beta Investment Strategies 16, no. 4 (winter 2025).