The old map is outdated: Are investors stuck in the past on emerging markets?

Eric Marais

The market’s view that emerging markets are still defined by the vulnerabilities of the past is increasingly at odds with the breadth of long-term value opportunities available across the asset class today, according to global contrarian investment manager Orbis Investments.

Orbis says the valuation gap between developed and emerging market equities suggests investors may still be pricing the sector for a level of pessimism that may no longer reflect the realities of the opportunity set.

“Viewing emerging markets through a narrow set of outdated risk assumptions means investors are potentially missing the opportunities presented by a more selective, bottom-up view of the sector,” says Orbis’ Head of Clients – Australia, .

Orbis’ recent white paper ‘Emerging Markets: The Map is Not the Terrain’ shows EM equities trading at around 16 times earnings on a cyclically adjusted basis, versus about 38 times for U.S. equities. That equates to a discount of roughly 60% and close to the widest on record.

“The truth is the old map of emerging markets no longer reflects the evolution seen in some policy frameworks, market institutions and shareholder outcomes across important parts of the opportunity set. These are all changing in ways the market still underappreciates,” Mr Marais said.

Here are five key updates to old assumptions about investing in emerging markets:

1. Emerging markets reward a more nuanced view of risk

Orbis’ close study of emerging-market equities has observed the asset class to be no more volatile than their developed-market peers.

In fact, emerging market volatility has steadily declined relative to developed markets over the past decade, and in recent years EM equity volatility has moved much closer to that of developed market peers.

“In recent years, EM equity volatility has more closely resembled developed-market volatility than many investors might assume. Volatility is not, in itself, a reason to dismiss an asset class. The more important question is whether investors are being compensated for the risks they are taking. In emerging markets today, we think many risks are better understood – and more fully priced – than many investors assume,” Mr Marais said.

2. Emerging markets can play a bigger role in diversification

Orbis argues emerging markets are also a diversification opportunity. Since the inception of the MSCI Emerging Markets Index in 1988 to the end of 2025, EM equities have shown a correlation of 0.72 with developed markets and 0.66 with U.S. equities meaning they have historically moved differently enough from developed and U.S. markets to offer investors a meaningful source of diversification.

“Investors are more aware of concentration risk in U.S. equities, but in every bout of volatility capital still tends to rush back to the same crowded exposures,” Marais said. “That is one reason emerging markets remain underused as a source of differentiated equity exposure.”

3. Selectivity matters more than passive exposure

Orbis says passive exposure can be especially blunt in emerging markets: investors get some excellent businesses, but also many deserving laggards.

“Benchmark inclusion can bring flows, but it does not remove the need for judgement,” Marais said. “In emerging markets, the biggest opportunities are often found where reform, governance improvement and capital discipline are converging – and those are not always captured well by passive exposure.”

4. Emerging-market currencies are more resilient than assumed

After a decade of U.S. dollar strength, many investors still approach EM currency exposure with caution. Orbis argues this is becoming a less reliable shorthand: many EM currencies now sit below long-term measures of fair value, while external balances and monetary frameworks in some EMs have improved.

“The old assumption was that currency weakness in emerging markets automatically meant deeper fragility,” Marais said. “That is no longer a safe shortcut. In many cases, currencies now behave more as shock absorbers than crisis triggers.”

5. Shareholder outcomes are an important measure of economic growth

A key market assumption for many investors is that strong profit growth necessitates solid earnings-per-share growth. But this translation is not always straightforward in emerging markets, as evidenced by the Chinese sharemarket. Over the 20 years to the end of 2025, listed Chinese companies grew net profits by about 15% per annum, but earnings per share grew by only about 5% per annum.

“For equity investors, growth only matters if shareholders actually receive it,” Marais said. “That is why governance, minority-shareholder protections and capital allocation are not side issues in emerging markets but are completely central to the investment case.”

EM trade: more nuanced than investors assume

Orbis says emerging markets are often still viewed as a single risk trade, rather than as a broad and increasingly differentiated opportunity set. Across parts of the emerging markets universe, policy frameworks are stronger, market institutions are more developed, and the gap between high-quality and low-quality opportunities has widened.

Orbis’ philosophy of investing in emerging markets is to focus on buying quality businesses at a meaningful discount to true long-term value, and patiently holding those positions for the long term, or until the market recognises that value.

“The investment terrain in emerging markets is a fundamentally different story now than it has been in the past,” Marais said. “Investors with a differentiated investment approach will be better placed to make the best of the mispricing opportunities that emerge. We believe those opportunities are among some of the most attractive long-term opportunities.