Invesco Equity Strategy

Challenges and opportunities in emerging market stocks Equity Strategy Playbook

December 2021

Talley L?ger Senior Equity Strategist

Contents

A) Where are we in the market cycle? 1. Market cycles

B) What are the opportunities or challenges? 2. Valuations

C) What are the catalysts? 3. Fiscal policy 4. Monetary policy 5. Economic growth 6. Geographic revenue exposure 7. Earnings growth

D) How is the herd behaving? 8. Flows 9. Currencies 10. Technicals

2

Multifactor framework

A consistent, systematic method

10. Technicals

1. Market cycles

2. Valuations

9. Currencies

8. Flows

China and EM equity view: Market weight

3. Fiscal policy 4.

Monetary policy

Source: Invesco. Note: For illustrative purposes only.

7. Earnings growth

6. Geographic

revenue exposure

5. Economic

growth

A) Cycle: 1 B) Opportunities or

challenges: 2 C) Catalysts: 3-7 D) Behavior: 8-10

3

Market cycles

The trend isn't your friend.

Back

4

Market cycles

EM stocks have underperformed for more than 11 years. True, 2016, 2017, and 2020 were banner years, but 2018, 2019, and 2021 were challenging.

Emerging (gray) and developed (white) stock market cycles since

1988

4.0

7 years

12 years

3.5

EM

3.0

outperformed

2.5

Emerging (light blue) and developed (dark blue) stock market

cycles since 1988

500

EM outperformed

400 Dec '87-

Sep '94

300

Average:

9 Years

200

Jan '99-

Sep '10

2.0

100

Ratio EM/DM Regimes: Excess Returns (%)

1.5 DM

outperformed 1.0

0.5

4 years

11 years

1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021

EM Regimes

MSCI Emerging Markets Index/MSCI World Index

0

-100

DM outperformed Sep '94-

Average: 8 Years

Jan '99

-200

2

4

6

8

10

Sep '10Current

12

14

Emerging Market/Developed Market Regimes: Length (Years)

Sources: Bloomberg L.P., Invesco, 11/30/21. Notes: EM = Emerging markets. DM = Developed markets = MSCI World Index. MSCI EM and World Index price returns in US dollars. An investment cannot be made into an index. Past performance does not guarantee future results.

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