Patience Pays in Emerging Equities

Equity investors are increasingly focused on short-term results. In an impatient marketplace, investors can discover powerful sources of returns in emerging-market (EM) companies that deliver extended growth over several years.

In recent decades, investing horizons have shortened considerably. The average holding period for NYSE stocks has halved since the 1970s, to less than two years. Turnover is even higher in emerging markets, with the average holding period across five key Asian markets shrinking to less than a year (Display).

Why are investors so restless? First, technology now enables access to financial data in seconds, and has spurred a boom in algorithmic trading, which accounts for over half of US trading volume today. Second, hedge funds—with short investment horizons—have mushroomed to nearly US$3 trillion in assets under management since the mid-1990s; the sell side has responded to this shift by focusing research more on the 12-month outlooks of stocks.

As other market participants shorten their horizons, we see opportunities for long-term investors. This is especially true in emerging markets, where market data is less readily available and consumer trends can take years to play out.