February2025

Long-TermInvesting

EmergingMarkets

LONG-TERMINVESTINGINEMERGINGMARKETS|FEBRUARY2025

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AnilRao

ExecutiveDirector,MSCIResearchandDevelopment

RohitGupta

VicePresident,MSCIResearchandDevelopment

TheauthorswouldliketothankDinankChitkaraforhiscontributionstothisresearch.

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Contents

Executivesummary 4

Introduction 5

Emergingmarketopportunityset 5

ExaminingEMunderperformance 7

Performancedecomposition 7

Earningsgrowthandsharedilution 8

ActivemanagementandtheEMopportunityset 10

Characteristicsoflong-term‘compounder’stocks 12

Concentrationofreturnsandwealthcreation 12

Fundamentalfactorsintheemergingmarkets 13

Commonattributesofcompounderstocks 14

Earlyhintsoffuturesuccess 16

Transitionfromgrowthtoprofitability 17

Implicationsforindexedinvestors 19

Conclusion 20

References 21

AppendixA:Indextotal-returndecomposition 22

AppendixB:Factorreturnsintheemergingmarkets 22

AppendixC:Stocksurvivorshipinout-of-sampleperiod 23

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Executivesummary

Emergingmarkets(EM)haveheldacentralpositioninglobalequityallocationssincethe1980s,drivenbyexpectationsoffavorablegrowthanddiversificationbenefits.Whilethesefactors

supportedoutperformanceuptothe2008globalfinancialcrisis(GFC),EMstockshave

underperformedthosefromdevelopedmarkets(DM)byalmost5%annuallythereafter.ThisdevelopmenthaspromptedinvestorstoreassesstheroleofEMintheirequityallocations.

Againstthisbackdrop,threecorequestionsemerge:

?WhyhaveEMequitiesunderperformedDMsincetheGFCdespitecontinuedoveralleconomicexpansion?

?WhichoperationalandfinancialattributeshavecharacterizedtheEMcompaniesthathaveoutperformed,evenamidbroadmarketheadwinds?

?Howcaninvestorsbothactiveandindexedbetteridentifythesepotential“l(fā)ong-termcompounders”andsoaligntheirportfolioswiththepersistentdriversoftotalreturn?

FollowingtheGFC,manyEMeconomiescontinuedtodevelop,withcommensurategrowthinthenumberoflistedsecuritiesparticularlyinChinaandIndiawhichhasexpandedtheinvestmentopportunityset.Despitetheriseinaggregateearningsandeconomicoutput,EMscapitalizationshareinglobalequitieshasremainednear10%,indicatingthatheadlinegrowthoftendidnot

consistentlytranslateintohigherrelativeper-sharereturns.

Akeydriverofthisdisconnectwaspersistentshareissuance.Whilesuchissuancereflecteda

healthysecondarymarket,italsotemperedearnings-per-sharegrowthdespiteoverallearnings

expansion.CurrencydepreciationagainsttheUSDfurtherweighedonreturns.Nevertheless,certainEMstocksbrokefromthispatternandpostedsustainedoutperformance,suggestingabifurcatedmarketinwhichcertainoperationalattributesmatteredmorethanrawtoplinegrowth.

Wedrawuponnearlythreedecadesofindex-andstock-levelreturnsandleverageanewequityfactormodeltunedtotheemergingmarkets.Throughthislens,weidentifythefundamental

attributessharedbylong-termcompounders.

Guidedbyaframeworkofdecomposingtotalshareholderreturn,weattributelong-term

performancetodriverssuchasinvestmentquality,return-of-capitalpoliciesandthebalance

betweengrowthandprofitability.Notably,thesecharacteristicswereevidentacrossdifferentEMsegments,includingmarketsoutsideofChina.Moreover,thesetraitswerealreadyapparentinthedecadeprecedingthecompounderssustainedoutperformance.

Thesefindingsarerelevanttobothactiveandindexedinvestors.Fordiscretionarymanagers,

identifyinghigh-qualitycompanieswithcapital-returnpoliciesmayrevealopportunitiesinamarketstillcharacterizedbylowanalystcoverage.Equally,indexedinvestorscouldemploysystematic

approachesthatemphasizesimilarfactors.

Takentogether,theevidencesuggeststhatwhileEMequitiesstillfacehurdlessuchasheightenedsensitivitytoanewU.S.administration,elevatedgrowthexpectationsandunevenshare-issuance

patternscompaniesexhibitingsuchoperationaldisciplinemayprovemoreresilient.

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Introduction

Onceheraldedfortheirhighgrowthpotential,emerging-market(EM)equitieshavesignificantly

underperformeddevelopedmarkets(DM)sincethe2008globalfinancialcrisis(GFC),castingdoubtonthetraditionalEMnarrative.Meanwhile,newdevelopments—suchasChina’spolicyshiftsandrange-boundequitymarketandIndia’songoingcapital-marketreforms—underscorediverging

trajectoriesacrossEMcountries.Asaresult,investorscouldbereconsideringtherelevanceofEMstocksinglobalequityportfolios.

WebeginbyhighlightingtheexpandingEMinvestmentopportunitysetandbyexaminingthe

componentsoftotalshareholderreturn,payingspecialattentiontoshareissuance,aphenomenonthatoftenunderminesgrowthinearningspershare(EPS).

WethendrawonthelongerhistoryofEMequityindexdataandapplyanewequityfactormodelthatconnectsoperationalleverstostockreturns.Ouranalysisaimstoclarifywhichfundamental

attributeshavehelpedcertainEMcompaniesthrive.Theframeworkweproposeisdesignedtoaidportfoliomanagersofbothactiveandindexedstrategiesinbetteridentifyingthosesignals

associatedwithfirmscapableofconvertingemergingeconomies’expansionintototalshareholderreturns.

Emergingmarketopportunityset

Thenumberoflistedcompaniesinglobalequitymarketshasgrownsteadilyoverthepasttwo

decades,drivenprimarilybyemergingmarkets.ThenumberoflistedsecuritiesinEMhasincreasedbyroughly100%since1998,supportedbyexpandingcapitalmarketssuchasthoseinChinaand

India.Incontrast,theuniverseofpubliclylistedcompaniesinDMhasdeclined.IntheU.S.,the

numberdeclinedsteadilyfrom1998to2010buthasrisenslightlysincetheCOVID-19pandemic.ThesepatternsareshowninExhibit1.

Exhibit1:RiseinthenumberoflistedcompaniesgloballydrivenbyEMissuance

Thedataperiodspans1998through2024,withthenumberofcompaniesmeasuredatyear-end,excludingtheover-the-counter

market.ThecountsforDM,DMexUSAandEMarebasedonlistedsecuritiesclassifiedaseligiblefortheMSCIWorld,MSCIWorldexUSAandMSCIEmergingMarketsIndexes,respectively.

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TheshareofEMsecuritiesintheMSCIACWIInvestableMarketIndex(IMI)hasalsoincreasedoverthepasttwodecades.Concurrently,EMoutpacedDMineconomicgrowthduringthisperiod.TheshareofglobalGDPrepresentedbyEM(measuredbytheMSCIACWIGDPWeightedIndex)rosetoover40%by2024fromjustover20%in2002.

Despitethisgrowth,thefree-floatmarketcapitalizationavailabletoinvestorshasremainedflatataround10%oftheMSCIACWIIMIsincetheGFC,asshowninExhibit2.Weexaminepotential

causesofthedisconnectbetweeneconomicgrowthandmarketcapitalizationinEMinthenextsection.

Exhibit2:EMfree-floatmarketcaphasremainedflatsincetheGFC

SampleperiodisfromJune1,2002,toDec.31,2024.

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ExaminingEMunderperformance

EMequitieshaveunderperformedDMsincetheGFC,asExhibit3illustrates.U.S.equitieshaveledallmajorequitymarketssince2009,largelydrivenbygrowth-orientedtechnologystocks.Thiswasnotthecase,however,inthe10yearsleadinguptotheGFCwhenEMequitiesledmajormarkets,fueledbygrowthinLatinAmerica.

1

Exhibit3:EMequitiestrailedDMequitiesaftertheGFC

AnnualizedreturnsaregrossinUSDfromDec.31,1996,toDec.31,2008,andfromDec.31,2008,toDec.31,2024.TheregionalmarketsarerepresentedbytheMSCIUSA,MSCIWorldexUSA,MSCIEmergingMarkets,MSCIEmerging

MarketsAsiaexChina,MSCIChina,MSCIEmergingMarketsLatinAmericaandMSCIEmergingMarketsEMEAIndexes,respectively.Theperiodanalyzedisthelongestcommonhistoryfortheindexes.

China'ssignificantweightinEMindexes,combinedwithitslowerreturns,explainsalargepartofEMequitiesunderperformancesince2009.Incontrast,EMAsiaexChinadrivenbyIndia,TaiwanandKoreaperformedcompetitivelywithU.S.equitiessince2009,markingaturnaroundfromthe1997-2008periodwhentheAsiancurrencycrisisresultedincapitalflight,currencydevaluationandsloweconomicgrowththatweighedonstockreturns.

Performancedecomposition

SincetheGFC,growthindividendsandearningscontributedalmost70%toperformanceacrossallregions(wedescribeourdecompositionmethodologyinAppendixA).U.S.equitiesbenefitedfromacombinationofmultipleexpansionandgrowthindividendsandearnings,drivenbybothrisingprofitmarginsandexpandingsales(see

Exhibit4)

.

Emergingmarketsasawholeexperienceddecliningmargins,whichaffectedearningsgrowth.

WithinEMexChina,mutedearningsgrowthandcurrencydepreciationagainsttheUSDnegatively

impactedreturns.Valuationexpansion,particularlyinIndia,wasakeysourceofreturns,butnotsoinChina,wherevaluation-multipleexpansionwasmodest.

1AlthoughtheMSCIUSA,MSCIWorldexUSAandMSCIEmergingMarketsIndexeshavepricehistoryfrombeforeDecember1996,westartouranalysisinDecember1996toalignwiththefundamental-factordataweuselaterinthispaper.

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Importantly,deterioratingper-shareprofitability(showninturquoisein

Exhibit4)

inbothEMexChinaandChina,ratherthanweaktoplinegrowth,wastheprimaryreasonforlacklusterearningsgrowth.

Exhibit4:StrongUSDandlowerearningsgrowthweighedonEMreturnsaftertheGFC

ReturncontributionsareannualizedingrossUSDfromDec.31,2008,toDec.31,2024.TheregionalmarketsarerepresentedbytheMSCIUSA,MSCIEmergingMarketsexChina,MSCIWorldexUSAandMSCIChinaIndexes,respectively.

Earningsgrowthandsharedilution

TobetterunderstandthelowerEPSgrowthinEM,weanalyzedfactorsthatcontributedtothisphenomenon.Historically,investorshavebeenattractedtoEMduetostrongratesofeconomicgrowth.AsExhibit5illustrates,however,emergingmarketsachieved8.7%annualizedgrowthinaggregateearningsoutpacing8.5%U.S.growthyetthisgrowthdidnottranslateintosimilargainsinEPS.

Per-shareprofitabilityisimportantforstockholdersbecauseitmeasuresacompany'soperationalefficiency,accountingforinterestpaymentsandfacilitatingcomparisonsacrosscompanies.Somecompanies,however,mayusecertainfinancialstrategiestokeeptheirEPSfigureshealthyeven

whentheirfundamentalsareweak.SuchpracticesunderscoretheneedtotakeaholisticviewofacompanysfinanceswhileinterpretingEPStrends.Thatsaid,emergingmarketsregisteredan

annualizedEPSgrowthrateof5.6%,laggingtheEPSgrowthrateintheU.S.of9%.

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Exhibit5:TotalEMearningsrosewhileper-shareearningstrailedDM

SampleperiodisfromMay31,2002,toDec.31,2024.Indexearningsarecalculatedbottom-upusingmonth-endvalues.EarningspershareistrailingEPSatmonth-endfrequency.Returnsareannualized.

Ideally,aggregatedcorporateearningsgrowthshouldalignwithGDPgrowthoverthelongterm.Newshareissuances,however,couldcauseadisconnectbetweenearningsgrowthandGDPgrowth.

Bothaninitialpublicofferingandanexistingfirm’sfinancingexpansionwithsecondary,orrights,

offeringscandilutesharevalues.Sharedilutionreducesexistinginvestors'claimsonfutureearningsanddividends.Companiesmayissuenewsharesforpurposessuchascapitalexpenditure,new

acquisitionsorretiringdebt.

Ontheonehand,thisdynamiccouldleadtoslippagebetweenEPSandGDPgrowthrates,asnotedbyBernsteinandArnott(2003).Sharebuybacks,ontheotherhand,reducethenumberof

outstandingsharesandcansubsequentlyboostEPS.SharebuybacksgrewintheU.S.throughoutthe1990sand2000s,supportedbycorporatestrategiestoreturnexcesscashtoshareholders.Acommonlyacceptedrationaleforsharebuybacksincludesstock-pricesupport,capital-structureoptimizationandspecialtaxtreatmentforcashrepatriatedfromoverseas.

Inanequityindex,thecombinedimpactofsharedilutionandbuybacksonEPScanbeassessedusingthebuyback-yieldmetric,showninExhibit6.Indexbuybackyieldistheweightedaverageofeachconstituent’sbuybackyieldatmonth-end.Foreachstock,buybackyieldiscalculatedasthechangeinitstrailing12-monthsharecountrelativetoitscurrentsharecount.

NewshareissuancesandnewlistingshaveledtoanegativebuybackyieldinEMequitiessincetheGFC.Incontrast,U.S.firmshavehistoricallyfavoredsharebuybacks,resultinginapositivebuybackyieldoverthesameperiod.DMotherthantheU.S.(auniverserepresentedbytheMSCIWorldex

USAIMI)hadasimilarpatterntoEMuntil2023,whenbuybacksturnedsharplypositive.

TheEMbuybackyieldmovedintopositiveterritoryin2024,ledbyanincreasedlevelofbuybackactivity.

Exhibit6:BuybackyieldhasbeenmostlypositiveforUSandnegativeforEMoverthelast20years

DatafromApril29,2005,toDec.31,2024,basedondataavailability.Indexbuybackyieldistheweightedaverageoftheindex’sconstituents’buybackyieldsatmonth-end(annualfrequencypriortoApril2016).Pleasereferto

MSCIBuyback

YieldIndexesMethodology

formoredetail.

ActivemanagementandtheEMopportunityset

DespitethechallengesEMequitieshavefacedinkeepingpacewithDMequities’performance,theexpandingopportunitysetacrossEMcountries,sectorsandcompaniessuggestspotential

opportunitiesforactivemanagementofEMequities.

2

Managerscanseektoidentifycompanies

withstrongfundamentals,pricingpoweroruniquecompetitiveadvantagesnotfullyappreciatedbythemarket.

Oneindicatoroftheactive-managementopportunitysetistherelativelylimitedanalystcoverageofEMstockscomparedtothoseinthedevelopedmarkets.Feweranalyststrackingthesestockscanleadtomispricingopportunities,particularlyinthesmall-capsegment.Exhibit7showsthatanalystcoverageofindividualstocksissignificantlylowerinEMcomparedtoDM.

2WedefinesectorsusingtheGlobalIndustryClassificationStandard(GICS?).GICSistheindustry-classificationstandardjointlydevelopedbyMSCIandS&PGlobalMarketIntelligence.

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Exhibit7:EMstockshavelowerglobalanalystcoveragerelativetoDM

DataasofDec.31,2024.Coverageisdefinedastheratioofthenumberofsecuritiescoveredbyatleastthreeanalystsinaregiontothetotalnumberofsecuritiesinthatregion.Analystcountisapproximatedusingthemaximumnumberofanalysts’estimatesforsecuritiesforanymeasureorfiscalperiod.Source:IBES,MSCI

OuranalysisofriskdecompositionforEMactivemanagers'portfolios(Exhibit8)revealsthatnearly50%oftheoverallactiveriskwasattributabletostock-specificeffects,indicatingthatportfolios

werelikelyconcentrated,withlargeweightsassignedtoarelativelysmallnumberofstocks.

3

Country,currencyandindustryexposureswerealsomeaningful,buttheyexertedlessimpactcomparedtostock-specificrisk.Thisfindinghighlightsthatbottom-upstockpickingremainsacentralstrategyamongactivemanagersfocusedonEM.

Exhibit8:Stock-specificviewshavebeenthelargestactivebetforEMactivemanagers

DataasofNov.30,2024.Includesover170mutualfundswithassetsundermanagementgreaterthanUSD1million

andbenchmarkedtotheMSCIEmergingMarketsIndexusingtheMSCIEmergingMarketsEquityFactorModel.Source:

Lipper,MSCI

3Theaveragenumberofsecuritiesinthesampleofactivemanagerswas143,whiletheeffectivenumberofsecuritieswas47,

indicatingsignificantconcentration.Theeffectivenumberofsecuritiesinaportfolioquantifiesitsdiversificationbyadjustingfortherelativeweightsofindividualholdings,reflectingthenumberofequallyweightedsecuritiesthatwouldprovidethesamelevelof

concentrationrisk.

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ThisinsightpromptsacloserlookatthecharacteristicsofcompaniesthatprospereddespitethechallengesfacedbyEMsince2009.Agoodunderstandingofthetraitsoftheselong-term

compounderscouldinformapproachestostockselectionandrisk-exposuremanagement.

Characteristicsoflong-term‘compounder’stocks

Concentrationofreturnsandwealthcreation

Thepreviousanalysesunderscoretheimportantimpactthatdividendsandearningshavehad

historicallyonoverallmarketreturns.EquallyimportantisthenarrowleadershipwithinEMstocks.ResearchbyBae,ChanwooandWei(2006)foundthatstockreturnsinemergingmarketshave

tendedtobemoreskewedthaninotherregions,withsignificantgainscontributedbyafewhigh-performingstocks.

WefoundthatEMhadthehighestreturnconcentrationacrossmajorregions(Exhibit9).Our

analysisgroupedindividualstocksintoequallysizedquintilesbasedontheircontributiontototalreturnfrom2009through2024.Overthisperiod,thetopquintilecontributedmorethan80%ofthetotalreturninDMandover100%ofthetotalreturninEM.

Theseresultspartlyreflecttheasymmetric,right-tailednatureofindividualstockreturnsinEM,

whereahandfulofstockscandominateperformance,afindingalsomadebyHwangandSatchell(1999).Winner-takes-mostdynamicsoftenappearinfast-scalingindustriessuchastechnologyorinternetplatforms.InEM,theseeffectscanbeevenmorepronounced,withahandfulofcompanies—sometimesstate-backedwithpolicysupport—capturingoutsizedadvantages.

Anothercontributingfactoristhemechanicsofindexweighting:whenalargestockdeliversmarket-levelorabove-marketreturns,itshigherweightmagnifiesitsreturncontributiontotheindex,

compoundingovertimeandfurtherskewingoverallreturncontributions.

Exhibit9:EMstockshistoricallyhadthemostconcentratedreturncontributions

ReturncontributionsaregrossinUSDfromDec.31,2008,toDec.31,2024,andareshownasashareofeachmarket’stotalreturn.TheregionaluniversesarerepresentedfromlefttorightbytheMSCIEmergingMarketsSmallCap,MSCI

EmergingMarkets,MSCIEmergingMarketsexChina,MSCIWorldexUSAandMSCIUSAIndexes,respectively.Quintilesareequallysizedandbasedoncontributiontototalreturn.

TheseobservationsalignwithBessembinderetal.(2023),whofoundthatoveracenturyofU.S.

stock-markethistoryasmallfractionoffirmsdrovethebulkofwealthcreationthroughconsistentcompounding.

4

Identifyingsuchfirmsexanteisnotoriouslydifficult.Here,instead,weexaminetheircommonex-postattributes,whichmayprovideinsightsintohowEMcompounderscanarisedespitethebroaderchallengesinthesemarkets.

Exhibit10

underscoresthehistoricallynarrowleadershipinEMstocksbylistingthe10largest

individualcontributorstoperformanceintheEM,EMexChinaandEMsmall-capsegments.Notably,manyofthesetopperformersalsocamefromthefinancialandtechnologysectors.

Exhibit10:Tenlargest-returncontributionsinEMsince2009

ReturncontributionsaregrossinUSDfromDec.31,2008,toDec.31,2024,andareshownasashareoftotalreturn.Weshowonlythe10largestcontributorsforillustrativepurposes.TheregionaluniversesarerepresentedfromlefttorightbytheMSCIEmergingMarkets,MSCIEmergingMarketsexChinaandMSCIEmergingMarketsSmallCapIndexes,

respectively.

Fundamentalfactorsintheemergingmarkets

Weexaminedthecharacteristicsofthetop-quintilecompounderstocks(representedbytheblue

barsin

Exhibit9)

,usingtheMSCIEmergingMarketsEquityFactorModel(EMEFM),which

categorizesEMstocksasChinaorEMexChina.Theregionalbreakdownalignswiththesignificantperformancedifferencesbetweenthesetworegionssince2009.TheregionalcategorizationalsomotivatesacomparisonofcompounderstocksinthebroaderemergingmarketsandthenarrowerregionofEMexChina.

Wefocusedspecificallyonfundamentalfactorscloselyrelatedtoacompany'soperations.Thesefactorsincludedthosemeasuringgrowth,earnings,investmentpatterns,capital-allocationpoliciesandoperationalefficiency.WedefinethesefactorsinExhibit11andshowtheirlong-termbehaviorinAppendixB.

4Morerecently,MauboussinandCallahan(2024)showedarelatedresultontheskewnessinvaluecreation.Theyfoundthatmostofthevaluecreationineconomicprofit(asmeasuredbyreturnoninvestmentlesscostofcapitalmultipliedbyinvestedcapital)residedinthetopdecileoffirmsintheU.S.overtheperiod2019-2023.

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LONG-TERMINVESTINGINEMERGINGMARKETS|FEBRUARY2025

Exhibit11:KeyfundamentalfactorsrelatedtooperationsandefficiencyintheMSCIEMEFM

Factor

Measure

Descriptors

Earningsquality

Accountingtransparency

Accrualsinbalancesheetandcashflow,cashearnings

Investmentquality

Capitalefficiency

Long-termgrowthinshareissuance,assetsandcapitalexpenditures

Earningsvariability

Operationalconsistency

Variabilityinsales,earnings,cashflowsandforwardmultiple

Profitability

Operationalefficiency

Assetturnover,grossmargin,grossprofitability,returnonassets

Dividendyield

Capital-returnpolicy

Trailingandforwarddividendyield

Growth

Demandexpansion

Trailingsalesandearningsgrowth,forwardearningsgrowth

Commonattributesofcompounderstocks

SincetheGFC,top-quintilecompounderstockshavegenerallyreturnedmorecapitaltoshareholdersthroughdividends,demonstratedmoreconservativeinvestmentpatternsandweremoreprofitablecomparedtostocksinthebottomquintiles.Thesecompoundersalsoexhibitedmoreconsistent

operations(asmeasuredbysales,earningsandcashflow).Notably,theywerenotnecessarilyhigh-growthfirms.Theyalsodidnotexhibithigherearningsquality,asmeasuredbyaccruals.

ThisfactorprofilewasconsistentacrossbroadEM,EMexChinaandsmaller-capEMstocksas

showninExhibit12.

5

Fourfactors(dividendyield,investmentquality,profitabilityandlowearningsvariability)weresignificantattributesinallthreesegments,withlowearningsvariabilitybeingthemostsignificant.Furthermore,thesimilarityinsmall-capstocksindicatesthatthesefour

characteristicswerenotlimitedtojustthelargestfirms.

5Notethatthenegativeexposuretotheearnings-variabilityfactorindicatesthattop-quintilecompounderstockshadmorestableearningsthanthebottomquintileofstocks.

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LONG-TERMINVESTINGINEMERGINGMARKETS|FEBRUARY2025

Exhibit12:Dividendyield,investmentquality,profitabilityandlowearningsvariabilityweremostassociatedwithcompounderstocks

ExposuresarebasedontheMSCIEMEFM.End-of-monthexposuresareaveragedfromDec.31,1996,toDec.31,2008,andfromJan.31,2009,toDec.31,2024.Exposuresarethequintilespread,wherequintilesarebasedonreturn

contributions.TheregionaluniversesarerepresentedfromlefttorightbytheMSCIEmergingMarkets,MSCIEmergingMarketsexChinaandMSCIEmergingMarketsSmallCapIndexes,respectively.

Onlyinthesmall-capsegmentwashighgrowthstronglylinkedwithcompounderstocks.Thisfindingmayreflectthatsmallerstocksareatanearlierstageintheirbusinesslifecycle,whichallowsthemtoexpandintogrowingmarkets,withhighsalesandearningsgrowthdrivingcompounding.In

contrast,largerEMstocks,beingmoremature,reliedmoreonoperationalefficiencythangrowth.

Theindividualdescriptorsofthedividend-yield,investment-qualityandprofitabilityfactors,asshowninExhibit13,provideadditionalnuance.Notably,trailingdividendpolicy,sharebuybacksandreturnonassets(highlightedinredtextintheexhibit)werethemostdominantdescriptors—apatternalsoobservedacrossEM,EMexChinaandEMsmallcaps.

6

Thelowerrankingofgrossprofitabilitysuggeststhatthecompetitiveadvantageofcompounderstocksmaybetiedmoretocostleadersh