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The Case Against EM Equities

Questioning the emerging markets growth story

Nicolas Rabener
10 min read
31 May 2021

SUMMARY

  • EM equities are highly correlated to US stocks & high yield bonds, limiting diversification benefits
  • They outperform primarily when the USD is depreciating, making it a currency play
  • The largest MSCI EM index members will experience 50% population declines

INTRODUCTION

Seeing latex slowly dripping out of rubber trees into wooden bowls on a plantation in Malaysia was a fascinating experience as a teenager. We had a great local guide that described how the milky substance had to be collected daily, which would then be processed into rubber. He also mentioned that he was living on the plantation with his seven children, which he attributed to the lack of electricity post sunset.

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