Re-Emerging Equities

AQR

Research

11 Pages

AQR Capital Management makes the case for revisiting emerging market equities now that expected long horizon returns look unusually attractive. The authors argue that valuation spreads, improved fundamentals, and declining risk support a higher strategic allocation than many portfolios currently hold. They also highlight a rich opportunity for value oriented active management within emerging markets and compare this with simple market cap weighted exposure.

Key Takeaways

Emerging premium case: Expected returns for emerging markets sit near the high end of recent history while risks look more balanced.
Improved risk profile: Lower volatility, healthier external balances, and better growth fundamentals strengthen the diversification role of emerging equities in global portfolios.
Scope for active: Wide valuation gaps between cheap and expensive companies create room for value oriented stock selection beyond passive index exposure.

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