Quality Works on EM Stocks Too

My last post showed that the quality (or profitability) premium provided valuable insights into not only U.S. stock returns, but international developed markets as well. Today I’ll look at the question of whether this quality factor applies to emerging markets. The simple answer is yes.

To review, the profitability/quality factor tells us that more profitable firms outperform less profitable ones even if the more profitable firms have higher valuations than the less profitable ones, and we do have fresh research on the question of the emerging markets.

A December 2013 study by Pimco’s Masha Gordon and Giuliano De Rossi examined the data on the countries in the MSCI Emerging Markets Index to determine if there was also a profitability premium in emerging markets. The study covered the period January 1998 to September 2013. Following is a summary of their findings:

Read the rest of the article at ETF.com.