Emerging markets, Covid-19 and the small-cap opportunity

'Unloved asset class'

It has been a tough decade to be an investor in emerging market equities. Over the past ten years, emerging market stocks have risen just 10% in US dollar terms. US stocks, by contrast, have risen 300% over the same period.

Underperformance has continued this year: while the S&P 500 is remarkably now almost flat for the year despite the impact of Covid-19, EM stocks are still down around 10%. Understandably, many investors have given up on the asset class. According to data from the Institute of International Finance, foreign investors withdrew $100bn from EM equity and bond markets between 20 January and 29 April 2020, more than four times the outflow that took place in 2008 in the Global Financial Crisis. Emerging markets as an asset class have been comprehensively evacuated by international investors....