Industry Voice: Is the value rally in emerging markets sustainable?

Value investing is coming in from the cold

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Industry Voice: Is the value rally in emerging markets sustainable?

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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This material is being furnished for general informational purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, and prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.

Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

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