Fulcrum Issues - Examining the relative value of U.S. and emerging market equities looking forward

The relative value of U.S. and emerging market equities is a “fulcrum issue” facing multi-asset investors in the years ahead.


  • Some of the best opportunities to profit from active asset allocation occur where there is a great controversy in the capital markets.
  • While global equity markets often produce returns that are directionally similar, there can be meaningful dispersion in performance and valuation measures across regions, countries, and the securities that comprise them.
  • The Shiller cyclically adjusted price-to-earnings (CAPE) is a useful starting point when contemplating the future cash flows of equities.
  • Investors are extrapolating fundamental relationships into the future, which is contributing to the valuation premium associated with U.S. stocks and setting a high bar.

Sales growth

Line graph showing sales growth. The vertical axis represents percentages from -20% to 40% and the horizontal axis represents years from 2001 to 2021. Periods of market stress are in the first quarter of 2001, second quarter of 2007 to the end of 2009 and the fourth quarter of 2019. The two lines show U.S. equities and MSCI EM. While aggregate sales have compounded at a higher rate in EME, they have been more volatile and shifted lower over the last decade.