Eastspring Investments, the asset management arm of Prudential plc, has published a new analysis outlining the case for adopting an active value strategy within emerging market equities. Navin Hingorani, the global emerging markets equity portfolio manager, noted that since the start of 2025, emerging market stocks have outperformed their developed market counterparts, with the MSCI Emerging Markets Index climbing over 60%—nearly double the return of the MSCI World Index during the same period.

However, this impressive rally has been driven by a narrow group of mega-cap stocks, creating what the team describes as the most concentrated market structure observed in nearly a quarter of a century. Eastspring argues that with concentration risk at a 25-year high, an active value approach grounded in fundamental research, alongside a strict focus on valuations and cash flow generation, offers investors better diversification and the ability to capitalize on mispriced opportunities.

The recent strong performance in select emerging markets has left passive investors increasingly exposed to concentration risk. As of the end of June 2026, Taiwan and South Korea together accounted for over 50% of the MSCI Emerging Markets Index’s total market capitalization, a significant jump from 37% in January 2025. While Taiwan and South Korea each contain roughly 80 to 85 constituent stocks, they command index weights of approximately 27% and 22%, respectively. In stark contrast, China, despite having five to six times more constituents than Taiwan, holds a weight of just 22%, and India, with around 180 stocks, represents only 11% of the index. Consequently, passive investors tracking the MSCI Emerging Markets Index are not gaining broad exposure to the Taiwanese and Korean markets but are instead heavily concentrated in a handful of large-cap technology names.

Within the emerging markets universe, Eastspring highlights that concentration risk is even more pronounced in growth-oriented benchmarks, such as the MSCI Emerging Markets Growth Index, where the information technology sector alone accounts for a 47% weight as of late July 2026. The global emerging markets asset class spans 24 countries and approximately 3,000 stocks, encompassing a wide variety of regulatory frameworks, corporate governance standards, liquidity profiles, and investor bases. Analyst coverage in these regions is typically thinner than in developed markets, which widens the scope for mispricing and idiosyncratic opportunities—areas where active managers can generate meaningful value through fundamental research and disciplined stock selection.

Given its emphasis on valuation, business fundamentals, and cash flow, a value strategy applied to global emerging markets has the potential to deliver superior diversification benefits. In an environment where certain pockets of the market appear expensive and increasingly crowded, focusing on valuations, cash flows, and core fundamentals provides access to distinct return drivers. Currently, the valuation spread between the most expensive and cheapest stocks in emerging markets stands significantly above its historical average. Additionally, with the US economy showing resilience alongside inflationary pressures, market expectations point to higher interest rates in the future. Value companies, characterized as shorter-duration assets because a larger proportion of their cash flows and earnings are realized earlier, tend to be less sensitive to interest rate fluctuations than their growth counterparts.

Eastspring further points to historical evidence showing that value strategies have consistently outperformed growth strategies over the long term. By purchasing shares trading below their intrinsic value, value investors stand to benefit as valuations revert to normal levels. Moreover, the dividends distributed by mature, cash-generative value companies contribute positively to long-term total returns, reinforcing the attractiveness of this approach in the current market landscape.