After a tough end to last year, emerging market equities have continued to pick up over the past month. Admittedly, they have lagged behind equities in developed markets, which have performed very strongly, but we think there is scope for emerging market equities to outperform their developed market counterparts over the coming months. One key reason for this is that the valuations of emerging market equities appear much more favourable than those of developed markets equities. For example, the price/12m forward earnings ratio of the MSCI Emerging Markets Index is around five points below that of the MSCI World Index of developed market equities.
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