Special Report

Dilution: The Silent Drag On Equity Returns (Part 1)

26 Jun 2025

by Rajeeb Pramanik, Senior EM Strategist Arthur Budaghyan, Chief EM/China Strategist Lucas Laskey,

Dilution is one of the two main reasons why EM EPS has been much weaker than EM GDP and EM non-diluted profits. We calculate “pure” dilution – adjusted for companies’ inclusion and exclusion from the stock index – for various bourses around the world. To our knowledge, this is the first time this analysis has been conducted.

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BCA Research | Emerging Markets Strategy

Critical input for global and EM investors as it provides global macro investment themes as well as recommendations for EM equities, currencies, and fixed income.

Contents

Executive Summary
"Pure" Dilution versus "Gross" Dilution
Dilution Ranking For The Past 18 Years
Identifying "Serial Offenders"
Global Regional Equity Dilution
Decomposing EM EPS Into Changes In FX And Dilution
EM Equity Returns Have Been Affected By FX Moves And Dilution
EM Equity Returns Have Been Affected By FX Moves And Dilution
There Is A Negative Correlation Between Dilution And Both Stock Returns As Well As RoE
There Is A Negative Correlation Between Dilution And Payout Ratio
Investment Implications