Among the building blocks of emerging markets (EM) exposures, country choice has been the primary source of risk. There are several idiosyncrasies to factor in when building and optimising EM portfolios, and country choice is an especially prominent right now given the political dynamics between the U.S. and China. First, it is important to note that within the EM block, there are significant structural differences between countries which are reflected in their equity markets. One indicative difference is varying levels of sensitivity to external market factors, such as the sensitivity of several EMs to the movements of developed markets (DMs) and the oil price sensitivity relative to EMs overall.
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