Morgan Stanley IM: Emerging Markets – Stepping Into the Spotlight-Update

In the 2010s, emerging market (EM) equities suffered their worst performance as an asset class since the 1930s.¹ They returned a mere +49%, compared to an average of +203% in the previous seven decades.² Emerging market countries ran high twin deficits, which led to currency depreciation and forced a cleanup of excesses from their over-leveraged balance sheets, a legacy of loose fiscal and monetary policies. The growth differential between emerging economies and the developed world, historically a key driver of relative equity returns, had also deteriorated in the last decade, a factor which is now turning in favor of EM. After lagging the developed markets (DM), especially U.S. equities which have been dominated by the performance of a handful of stocks, emerging markets are in a much stronger position to outperform developed countries this decade.

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this portfolio. Please be aware that this portfolio may be subject to certain additional risks. In general, equities securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. The risks of investing in emerging market countries are greater than the risks generally associated with investments in foreign developed countries. Stocks of small-capitalization companies entail special risks, such as limited product lines, markets, and financial resources, and greater market volatility than securities of larger, more-established companies. Derivative instruments can be illiquid, may disproportionately increase losses and may have a potentially large negative impact on the Portfolio’s performance. Illiquid securities may be more difficult to sell and value than public traded securities (liquidity risk). Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility. Cryptocurrency (notably, Bitcoin) operates as a decentralized, peer-to-peer financial exchange and value storage that is used like money. It is not backed by any government. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. Cryptocurrency may experience very high volatility.

¹ MSIM, Bloomberg, FactSet, Haver.
² MSIM, Bloomberg, FactSet, Haver. EM returns based on MSCI EM Index.

* This paper was originally published in Q4 2022, updated with new data as of Q1 2024.

^DEFINITIONS

^{Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. It includes all private and public consumption, government outlays, investments and net exports.}

^{INDEX DEFINITIONS}

^{The MSCI Emerging Markets Index (MSCI EM) is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance of 23 emerging markets.}

^{The MSCI World Index is a free float adjusted market capitalization weighted index that is designed to measure the global equity market performance of developed markets. The term “free float” represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends.}

^{The S&P 500® Index measures the performance of the large cap segment of the U.S. equities market, covering approximately 75% of the U.S. equities market. The Index includes 500 leading companies in leading industries of the U.S. economy.}

^{The CRB Continuous Commodity Index (CRB) is an index made up a of a broad grouping of different commodity futures, which is a benchmark of performance for commodities as an investment.}

^{The US Dollar Index (DXY) is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of US trade partners’ currencies.}

^{IMPORTANT INFORMATION}

^{There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.}

^{A separately managed account may not be appropriate for all investors. Separate accounts managed according to the particular Strategy may include securities that may not necessarily track the performance of a particular index. A minimum asset level is required.}

^{For important information about the investment managers, please refer to Form ADV Part 2.}