• During the sell-off in February, emerging market equities have not behaved like the risky asset class they are often feared to be, performing no worse during the sell-off than developed market equities. Despite inflation picking up, valuations and macroeconomic conditions in emerging markets remain reasonable, in our view.
• After a prolonged period of very low volatility in equity markets, forward-looking estimates of risk have risen to levels that are more normal. Developed markets saw a much larger relative increase in risk during the sell-off than emerging markets (EM).
• The recent sell-off has not had a significant impact on our preferences but overall risk estimates are adapting to recent market activity. When it comes to portfolio construction and risk management, it is important to maintain a balanced exposure to macro risks such as interest rate sensitivity.
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