Bonus Chart — EM Equity Allocations VS Equities Market Cap Weight
1.Bonus Chart 1 — EM Equity Allocations
This chart shows the market share of dedicated emerging market equity funds in both the US mutual fund market and ETF market — we can think of this as the implied allocation by investors to emerging market equities (in the aggregate).
So it’s fascinating then to see that mutual fund investors have an implied ~3% allocation to emerging market equities, while ETF investors are not much better; with 4% (which is down substantially from recent years, and a fraction of where it peaked at over 20% at the height of the post-08 recovery EM climax).
But really the key point is investors are running materially lower allocations than that seen over the past 20 years, and as you’ll see in the next chart… it’s also a fraction of the global market cap weight of EM equities (which is tracking just below 15%).
2.Bonus Chart 2 — EM Equities Market Cap Weight
As noted, emerging market equities’ global market cap weight is hovering just below 15% — this is well below trend, and is at the low end of the range of the past 20-years. It’s also well below the GDP weight of emerging and developing countries (which is estimated by the IMF at 60%, or 41% excluding China, and that compares to advanced economies at 40%).
So the key point here is that this chart by itself is arguably another piece of evidence favoring EM equities given the deviation from trend (+undershooting of recent decades average), and given the disparity vs GDP weighting*, but perhaps most of all: even at the current lowish level it’s about 4x the typical investor’s allocation. That’s a massive underweight that investors in the aggregate are running.
All that’s needed is an excuse, a catalyst, a reason to reallocate, and we could see something really special here — something that only happens about once a decade (a shift and turn in the decadal cycles of relative performance in global equities).
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