As for emerging-market equities, their longer-term performance looks better when you go beyond the past five years: a slight underperformance (-0.6%) during a 10-year period and a 4% outperformance during the past 15 years. And despite the sector’s rough ride during the past five years, Inker noted it’s just part of the ebb and flow of that part of the investing world.
“There is not a lot of compelling evidence that emerging equities are a value trap, as their slippage has been in the middle of the range against the developed world and completely consistent with the assumptions behind our forecasts,” he said, adding that profitability measures indicate that today’s earnings are about normal.
“We have seen more extreme valuation discrepancies between the two before, and such a gap can only occur when the relatively cheap asset continues to underperform,” Inker wrote. “But our goal here was not to generate guarantees, but rather take a hard look at these assets to understand whether the basic assumptions underlying our forecasts still seem like the correct ones. Despite the strong recent performance of the U.S. and the weak performance for emerging, neither has shown evidence that suggests we should change our assumptions.”