A Brightening Global and EM PictureEmerging markets equities began to recover in 2016 and are once again outpacing developed markets equities as the global and emerging markets backdrop brightens. Global growth is more widespread and emerging markets corporate revenues and earnings growth are accel-erating. And despite these improvements, emerging markets companies continue to trade at about a 30% discount to developed markets, posing a compelling investment opportunity.

Why Emerging Markets Now

2

Improving Fundamentals Driving EM ReturnsEmerging markets equities outperformed developed markets equities in the first six months of 2017. This is the asset class’s longest winning streak since May 2008 and its best first half since its banner year in 2009. Continued fundamental improvements could clear a path for extended strength.

Emerging Markets Performance Relative to Developed Markets

Index, 100 = 31 Dec 1987

100

180

260

340

420

2017201520132011200920072005200320011999199719951993199119891987

EM Outperforms

As of 30 June 2017Relative performance as measured by the MSCI Emerging Markets Total Return Index divided by the MSCI World Total Return Index. The performance quoted represents past performance. Past performance is not a reliable indicator of future results. This information is for illustrative purposes only and does not represent any product or strategy managed by Lazard. It is not possible to invest directly in an index.Source: MSCI

3

Strong 2017 Earnings OutlookEarnings are expected to grow over 20% in 2017. Yet, this growth may not be evenly distributed across every emerging markets country, sector, and company, providing many potential opportunities for active managers to add alpha. The majority of 2017 earnings gains are expected to come from companies in the information technology, energy, materials, and financials sectors and Korea, China, and Brazil.

MSCI Emerging Markets EPS Growth

-30

0

30

60

2019E2018E2017E20162015201420132012201120102009200820072006200520042003200220012000

(%)

11.3 10.922.6

As of 30 June 2017EPS growth from 2000–2016 is calculated on a 12-month trailing basis. EPS growth from 2017–2019 is calculated on a 12-month forward-looking basis.Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change.Source: FactSet Market Aggregates

Global Growth a Tailwind for EMGlobal growth began to pick up in 2016. This is a tailwind for emerging markets companies as this could increase demand for their goods and services. According to the IMF, emerging economies are expected to grow 4%–5% per year on average over the next five years. This is about 3% more than developed markets economies.

Emerging Markets GDP Growth Forecast

(%) (%)

EM Growth Premium over DM [LHS] EM Real GDP Growth [RHS]

0

2

4

6

0

3

6

9

2021E2018E201520122009200620032000

As of 18 April 2017Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change.Source: Haver Analytics, International Monetary Fund

4

EM Equity Returns Track EarningsEarnings growth has improved since 2016, but what does that mean for equity returns? In emerging markets, equity returns have closely tracked earnings growth over the past 20 years. Since emerging markets earnings are projected to grow steadily, we expect equity returns to follow suit.

MSCI Emerging Markets Returns versus Earnings

Index

Earnings [RHS]

MSCI Emerging MarketsTotal Return Index [LHS]

Earnings per Share (USD)

0

150

300

450

600

0

25

50

75

100

2017201520132011200920072005200320011999

As of 30 June 2017Trailing 12-month EPS.The performance quoted represents past performance. Past performance is not a reliable indicator of future results. This information is for illustrative purposes only and does not represent any product or strategy managed by Lazard. It is not possible to invest directly in an index.Source: MSCI

5

More Cash Flow, Less Debt, Higher DividendsCapital expenditures have declined mainly due to the completion of sizable projects and lower prices for many commodities. This, combined with the global economic recovery, has boosted free cash flow, enabling companies to pay down debt, deleverage their balance sheets, and pay out higher dividends to shareholders—an important component of total returns over the long term.

Emerging Markets ROE

(%)

5

10

15

20

201720152013201120092007

LatAmEMEA

Emerging MarketsAsia

As of 30 June 2017Return on equity measured on a trailing 12-month basisLatin America represented by the MSCI Emerging Markets Latin America IndexEMEA represented by the MSCI Emerging Markets Europe and Middle East IndexEmerging markets represented by the MSCI Emerging Markets IndexAsia represented by the MSCI Emerging Markets Asia IndexSource: MSCI

EM Profitability Is RisingCorporate profitability is beginning to recover across the developing world after five years of declines. These improvements are primarily being driven by capital expenditure cuts and more efficient use of capital by emerging markets companies. Companies in Asia offer the highest returns on equity of 11.4% on average, compared to 10.5% for companies in Latin America and EMEA.

Emerging Markets Free Cash Flow versus Leverage

Free Cash Flow per Share (USD) Net Debt/EBITDA

Net Debt [RHS]

30

40

50

60

0.90

1.05

1.20

1.35

2017201520132011

Free Cash Flow [LHS]

As of 30 June 2017Free cash flow is measured on a forward 12-month basis. EBITDA is measured on a 12-month trailing basis.Source: MSCI

6

MSCI Emerging Markets Index Valuation Discount to MSCI World Index

Price to Earnings, Premium/Discount (%)

-60

-40

-20

0

20

20172015201320112009200720052003

Average Discount

As of 30 June 2017Trailing 12-month price to earningsSource: Lazard, MSCI

A 30% Valuation DiscountEmerging markets are trading at about a 30% discount to developed markets, near a historical low and greater than their 15-year average discount of 25%. We see compelling valuation opportunities in this asset class at a time when many emerging markets countries have improved their economic standing and many companies are making meaningful, positive changes to their operating models.

7

More Room to RunThe outlook for emerging markets continues to brighten as the global recovery broadens. In 2017, emerging markets revenue and profit growth accelerated after several years of flat-to-negative growth. Companies in the developing world continue to trade at a deep discount to developed markets despite their strong returns on equity and greater leverage to a global recovery. Going forward, we believe performance across regions and sectors will be unevenly distributed and active stock selection will be essential to identify the winners from the losers.

MSCI Emerging Markets Currency Index

Index

1,400

1,500

1,600

1,700

201720162015201420132012

As of 30 June 2017Source: MSCI

EM Currencies Strengthening from 2015 LowsEmerging markets currencies weakened significantly from 2014–2015, but have appreciated since 2016. Better economic fundamentals, such as improving current accounts, higher global growth, and increasing foreign currency reserves, have translated into strengthening emerging markets currencies, which can provide a boost to local emerging markets equities.

HB27197

Important Information

Published on 27 November 2017.

This document reflects the views of Lazard Asset Management LLC or its affiliates (“Lazard”) based upon information believed to be reliable as of 17 August 2017. There is no guarantee that any forecast or opinion will be realized. This document is provided by Lazard Asset Management LLC or its affiliates (“Lazard”) for informational purposes only. Nothing herein constitutes investment advice or a recommendation relating to any security, commodity, derivative, investment management service or investment product. Investments in securities, derivatives and commodities involve risk, will fluctuate in price, and may result in losses. Certain assets held in Lazard’s investment portfolios, in partic-ular alternative investment portfolios, can involve high degrees of risk and volatility when compared to other assets. Similarly, certain assets held in Lazard’s investment portfolios may trade in less liquid or efficient markets, which can affect investment performance. Past performance does not guarantee future results. The views expressed herein are sub-ject to change, and may differ from the views of other Lazard investment professionals. 

This document is intended only for persons residing in jurisdictions where its distribution or availability is consistent with local laws and Lazard’s local regulatory authorizations. Please visit www.lazardassetmanagement.com/globaldisclosure for the specific Lazard entities that have issued this document and the scope of their authorized activities.

Equity securities will fluctuate in price; the value of your investment will thus fluctuate, and this may result in a loss. Securities in certain non-domestic countries may be less liquid, more volatile, and less subject to governmental supervision than in one’s home market. The values of these securities may be affected by changes in currency rates, appli-cation of a country’s specific tax laws, changes in government administration, and economic and monetary policy. Small- and mid-capitalization stocks may be subject to higher degrees of risk, their earnings may be less predictable, their prices more volatile, and their liquidity less than that of large-capitalization or more established companies’ securities. Emerging markets securities carry special risks, such as less developed or less efficient trading markets, a lack of company information, and differing auditing and legal standards. The securities markets of emerging markets countries can be extremely volatile; performance can also be influenced by political, social, and economic factors affecting compa-nies in these countries.

Certain information included herein is derived by Lazard in part from an MSCI index or indices (the “Index Data”). However, MSCI has not reviewed this product or report, and does not endorse or express any opinion regarding this product or report or any analysis or other information contained herein or the author or source of any such information or analysis. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any Index Data or data derived therefrom. The MSCI Index Data may not be further redistributed or used as a basis for other indices or any securities or financial products.

The performance quoted represents past performance.

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