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Risk and volatility in EM

Weekly investor research

18 December 2017

The most obvious expression of inefficiency in the EM asset class is that EM bonds have beaten US stocks for a quarter of a century. Still, investors still have far more money in US stocks than in EM bonds. Much of the reluctance to increase EM exposure to rational levels revolves around fears about price volatility. Yet, EM bonds have also had lower volatility than US stocks. Besides, volatility is not the same as risk, especially in EM countries, where risks are often poorly priced and typically overstated. Exploiting this inefficiency requires a special approach to investing. We explain why and how.

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