For most of the past decade, emerging-market stocks have generally underperformed U.S. names and other developed-market equities. Adding to this disappointment, the relatively low emerging-market returns have come with significant volatility.

Despite the fact that our emerging-market strategies have done reasonably well compared to their benchmarks, we’re quick to acknowledge that the long-term emerging-market underperformance and relative volatility were not expected. But rather than capitulating to the view that emerging markets will remain under a cloud, we think a better response is: “Don’t stop believin’.”

In this Market Scout commentary, we explain our reasons for optimism with discussions in four main areas:

  1. Emerging-market currencies have been weak for years, and this trend may reverse to the advantage of well-chosen stocks in developing nations. Our outlook is informed by similar currency cycles in the past.
  2. In the “old” emerging markets, companies largely depended on commodity production. But in the “new” emerging markets, the best companies are typically engaged in developing innovative technologies and in serving growing consumer needs. Our expertise is in the “new” emerging markets, and our emerging-market strategies are invested in companies that we believe can create their own destinies.
  3. The financial metrics of our emerging-market companies and the demographics of our preferred countries are some of the most attractive that we’re seeing in the investment universe.
  4. India, with its enormous population of young people, is our favorite emerging market of all. We believe India is on the cusp of exponential growth based on its embrace of technology, transparency and the rule of law.


For the decade that ended in 2010 (generally a period of U.S. dollar weakness and emerging-market currency strength), the MSCI Emerging Markets Index rose a robust 337.02% (15.89% on an average annual basis). But in the nine years ended in 2019 (generally a period of dollar strength and emerging-market currency weakness), the MSCI Emerging Markets Index returned only 20.72% (2.11% on an average annual basis).