Cap-weighted emerging markets indices have finished lower every month this year.

In April, the MSCI Emerging Markets Index (ND) declined 3.5 % in local currencies, 5.6 % in US dollars and 0.4 % in euros.

The MSCI EM Index (December 1988 = 100) now stands at $ 1,737 and € 1,815, respectively. Year-to-date, the EM benchmark was down 9.4 % in local currencies, 12.1 % in US dollars and 5.3 % in euros. Smaller emerging markets have performed much better recently than the larger ones, as shown by the KAM Equally Weighted EM Index. Measured by that index, emerging markets are down only 1.9 % in local currencies and down 5.4 % in US dollars year-to-date.

Calculated in euros, the KAM Equally Weighted EM Index is even up 1.9 % this year.

The euro finished April down 5.2 % at 1.0550 versus the US dollar and has now declined 7.2 % year-to-date.

Eight markets advanced in April and sixteen markets declined. Turkey (+7.6 %), Saudi Arabia (+5.9 %) and Indonesia (+4.7 %) had the highest returns last month, while Peru (-17.3 %), Poland (-13.8 %) and Brazil (-10.1 %) declined most.

Year-to-date, fifteen markets were up and nine were down.

The biggest winners this year were Turkey (+34.1 %), Saudi Arabia (+24.1 %) and Kuwait (+21.5 %), while Hungary (-21.8 %), Poland (-19.6 %) and China (-16.7 %) performed worst.

Performance is in local currencies unless mentioned otherwise.

The Emerging Markets Top Value Model Portfolio, which is based on the Top Value Strategy (December 1988 = 100) using national MSCI country indices as hypothetical investment vehicles, declined 4.8 % in local currencies, 8.1 % in US dollars and 3.1 % in euros in April.

The Emerging Markets Top Value Model Portfolio now stands at $ 30,571 and € 31,944. Year-to-date, it is down 4.9 % in local currencies, 9.2 % in US dollars and 2.1 % in euros, thus outperforming its EM benchmark by between 2.9 and 4.5 percentage points, depending on the currency.

There was no change in our performance ratings last month. The Top Value Model Portfolio continues to hold the nine “Buy”-rated markets Brazil, Chile, China, Korea, Malaysia, Mexico, Poland, Taiwan and Turkey.

According to our analyses, an equally weighted combination of these most attractively valued markets offers the highest expectation of long-term risk-adjusted performance.

For the recent performance of the national and regional MSCI Emerging Markets indices, benchmarks and strategies, please see page 6.

The table below shows how the Emerging Markets Top Value Model Portfolio compares to three alternatives as of April 30, 2022 based on selected valuation and return measures:

According to our analyses, the asset class Emerging Markets Equities is now undervalued by 32 % compared to the MSCI World Index of the developed markets.

Moreover, the Emerging Markets Top Value Model Portfolio is now undervalued by 26 % compared to the MSCI Emerging Markets (Standard) Index, by 50 % compared to the MSCI World Index of the developed markets (DM) and by a whopping 59 % compared to the MSCI EM Growth Index.

This extreme undervaluation is not justified by the underlying fundamentals and therefore is expected to lead to a significant outperformance of the Top Value Model Portfolio in the next three to five years through mean reversion.

Michael Keppler, New York, May 2, 2022

P.S. Mainly due to liquidity issues and geopolitical risks, we are deviating from straight equal weighting of markets in the portfolios we advise.