Navigating EM concentration through an active value approach

Navigating EM concentration through an active value approach

Navin Hingorani Portfolio Manager, Global Emerging Market Equities, Eastspring Singapore

EM’s recent outperformance has renewed investor interest, but passive exposure is increasingly concentrated. Taiwan and South Korea now account for nearly half of the MSCI EM Index, with exposure increasingly dominated by a narrow group of mega-cap technology names.

The breadth and inefficiencies of EM markets strengthen the case for active management. Across 24 countries and around 3,000 stocks, differences in regulation, governance, liquidity and analyst coverage create greater scope for fundamental research and stock selection to add value.

An active value approach can provide meaningful diversification in a more crowded EM landscape. Elevated valuation dispersion, broader return opportunities and a potential shift toward higher-for-longer rates support a focus on fundamentals, cash flows and mispriced companies beyond benchmark-heavy growth names.

Emerging Market (EM) equities have outperformed Developed Market equities since the start of 2025, with the MSCI EM Index up more than 60%, almost double the returns of the MSCI World Index1. This outperformance has renewed investor interest in EM equities with more than USD100 bn of inflows year to date, however most of these flows have gone into passive funds. Fig. 1.

Fig. 1. Most flows into EM equities have gone into EM ETFs (USD bn)

Source: JP Morgan, EPFR Global, Provisional data for August 2026.

This is despite EMs possessing numerous characteristics that position the region well for active investing. The Global EMs universe spans 24 countries and 3000 stocks – encompassing distinct regulatory regimes, corporate governance standards, liquidity profiles and investor bases. Analyst coverage of the GEMs universe is also less comprehensive compared to the developed markets. This means that there is greater scope for mispriced and stock-specific opportunities, allowing active managers to add value through fundamental research and active stock picking. In contrast, the deep liquidity conditions, broad analyst coverage and efficient information dissemination in the developed markets make it harder for active managers to uncover mispriced stocks. Fig. 2. These differences show up in the relative performances of passive funds that are invested in the US and EM equities. Fig 2 shows that over the last 10 years, passive funds tracking the S&P 500 Index have been able to deliver first or second quartile performances while passive funds tracking the MSCI EM Index have typically ranked in the third quartile.

Fig. 2. Performance of passive strategies against their benchmarks

Source: eVestment Peers Universe, Eastspring Investments, 30 June 2026. This is for information purposes only. It is not intended as an offer or solicitation for the purchase or

sale of any financial instrument, investment product, security or service. Past performance is not necessarily indicative of the future or likely performance.

EMs’ heterogeneity and wide return dispersion create more opportunities for active investors to generate alpha through active stock selection. Against a backdrop of rising geopolitical fragmentation and uneven economic growth going forward, active investing is likely to make a bigger impact on portfolio outcomes.