Emerging markets have lagged further in 2021, amid rising sovereign rates in the US, less favorable pandemic trends in some regions such as India and certain regulatory risks in China.

However, the adjustment has come more from price than from earnings, since the latter have continued to be revised upwards and estimates point to a 50% growth in earnings by 2021, which leaves valuations at attractive levels of 15x p/u fwd vs. 21x in developed markets. 

However, we continue to overweight emerging market equities in our global asset allocation, we continue to overweight emerging market equities in our global asset alocationbased on the following supports:

(1) the Biden administration should drive a lower geopolitical risk premium.

(2) emerging market valuations are cheap and trade at a wider than historical discount to developed markets. 

(3) The exchange rate should provide a tailwind due to the expected weakness of the dollar.

(4) emerging markets remain underweighted by global investors. 

(5) emerging market equities should be a regional beneficiary of investor rotation into cyclical and value assets.