Emerging Markets Volatility Equities Chart

Emerging-Market Equities: The Steep Cost of Missing Out

20 March 2025
2 min read
Staying Invested Helps Capture Long-Term EM Potential
Left chart shows emerging market versus developed market returns in two separate lines from 2021 to February 2025. Right chart shows how EM vs DM returns are affected by investors who miss out on the five, 10 and 15 best months of EM returns.

Past performance does not guarantee future results.
DM: developed market; EM: emerging market
As of February 28, 2025
Source: Bloomberg, MSCI and AllianceBernstein (AB) 

Emerging-market (EM) equities are off to a strong start in 2025, up 4.5% through March 14 in US-dollar terms. But investors could be excused for being wary. After all, emerging markets have struggled over the past decade.

Yet today, EM equity fundamentals are gaining momentum on the strength of upward-trending earnings estimates. And performance looks better from a longer-term perspective. Our analysis shows that, despite fluctuations, EM stocks have outpaced their developed-market (DM) counterparts since 2001 (Display). This long-term performance gap, coupled with the pratfalls of trying to time the market, makes it risky for investors to be on the sidelines, in our view—especially if emerging markets can sustain their recent gains.

Consider the cost: If an investor missed just 5% of their best-performing EM months since 2001—that’s just 15 months out of 290—EM equities would have underperformed DM equities by 3.0% on an annualized basis. Even missing five or 10 of EM equities’ best months during the 24-year period would lead to underperformance versus DM stocks. Bottom line: It’s better to stay invested.

Finding Strategies to Bolster Confidence

Of course, it won’t always be a smooth ride. But if you owned EM equities during their best- and worst-performing 15 months since 2001, they would have outperformed DM equities by 1.8% per annum. And our research shows that since 2001, EM equities have outperformed their DM peers by more than 3% per month slightly more often than they’ve underperformed by 3% per month.

To be sure, not all investors have long time horizons, and emerging markets do pose unique risks. Since it’s notoriously difficult to time the markets, we think investors should look for EM strategies that help bolster confidence to stay invested. These include portfolios that aim to offset volatility by deploying defensive strategies or by focusing on quality, profitable companies at attractive valuations. Given their long-term resilience and considerable potential to generate alpha, we think the time is right for investors who may be under-allocated to EM equities to give them a closer look.

The views expressed herein do not constitute research, investment advice or trade recommendations, and do not necessarily represent the views of all AB portfolio-management teams and are subject to change over time.

MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein.

The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

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