Emerging equity markets enjoyed a decade of relative outperformance over developed equity markets up to 2010. Since then, emerging equity markets have underperformed.

Headline valuations suggest emerging value in emerging equity markets. However we doubt whether the time is propitious and we remain cautious.

Furthermore, the emerging equity universe should not be treated as a homogenous block. A top-down  allocation model driven by country of listing is no longer sufficient given the increasing level of exposure to the emerging markets of developed market listed businesses.

We question the extent to which institutional investors fully understand their emerging market equity exposure.

Turning to the debt of the class, emerging market debt (EM debt) returns can be attributed to a number of factors including credit spread, carry and the risk free rate. We believe that the risk free rate will be subject to upward pressure over the coming quarters and this will present a further headwind for EM debt.

Institutional debt investors are enrolled in a vow of silence as to the liquidity characteristics of their markets. EM debt does not trade on exchanges, as equities do, and investment banks carry low inventories. Easy to buy, hard to sell and therefore dangerous.