This level of dispersion, while challenging for benchmark-driven investors, is precisely the environment in which active management thrives. These country-specific opportunities sit within a powerful global backdrop for emerging markets. Emerging and frontier economies now account for roughly 42 percent of global GDP and continue to grow materially faster than developed markets, where trend growth remains structurally subdued. Corporate earnings across emerging markets are expected to grow around one and a half times faster than in developed markets across large, mid and small-capitalisation companies, yet EM equities still trade at a valuation discount of around one-third to developed markets.
At the same time, sovereign balance sheets in emerging markets are, on average, materially healthier, with debt-to-GDP ratios more than a third lower than in developed economies, providing greater macro stability and reducing the risk of currency and capital-account stress. This combination of superior growth, stronger balance sheets and depressed valuations creates a compelling foundation for sustained EM equity re-rating as global capital gradually rotates back toward faster-growing and better-positioned economies.
