EM equity valuations remain relatively attractive

Emerging market equities were on track to outperform their developed market counterparts in Q2 for the first quarter in six. However, they still have a lot of ground to make up. Since the end of 2012, the total return in local currency terms from the MSCI Emerging Markets Index has been less than a quarter of the return from the MSCI World Index of developed market equities. And the return gap has been even bigger in dollar-denominated terms, owing to the depreciation of emerging market currencies. The flipside, though, is that the valuations of emerging market equities have become increasingly attractive in relative terms.