Investors Know What Not to Do in Emerging Markets. But They Keep Doing It Anyway.

Julie Segal speaks with Robert Koenigsberger, founder of the emerging markets firm Gramercy, about why investors keep repeating behavioural mistakes in emerging markets. He argues the asset class delivered over the past three decades, but investors bought the index rather than their highest-conviction bets, added money when markets were exuberant and sold at the worst time. The conversation also covers his view that the past 35 years of relative peace and friendly markets will not repeat, and that investors need to accept persistent uncertainty.

1. Koenigsberger says he and Gramercy chair Mohamed El-Erian agree that "our highest conviction is you can't have conviction," and that portfolios should use volatility rather than be whipped around by it.
2. He argues investors added emerging markets by buying the index instead of making their highest-confidence bets, which left large exposures to Argentina in 1999 and Russia and Ukraine in 2022.
3. His description of the pattern: investors bought in when markets were exuberant, held too long, sold at the worst time, then blamed the instability of emerging markets.
4. He says well-intended asset allocation rules and governance policies prevented institutions from being flexible and opportunistic.