After a decade of strong value outperformance in emerging market equities from 2001 to 2010 came a decade of sustained underperformance. In 2020, the value/growth divergence in EM reached an extreme not seen before, driven by the deep recession created by the global coronavirus pandemic. Before examining the disappointing performance of EM value since 2010, we should first ask ourselves "What drove value's outperformance between 2000 and 2010?" We believe there were two key factors at work. First, there was the Chinese economic supercycle as China spent a staggering USD 12 trillion on infrastructure and industrial capacity over this period.
This benefited "old economy" sectors globally, such as steel, cement, nonferrous metals, industrial machinery, and energy. Second, the world was starting to recover following a number of EM shocks (1994 Latin American tequila crisis, 1997-1998 Asian financial crisis, 1998 Russian crisis) during which a large amount of capex and many banks had been destroyed.
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