The question says three countries. Country A (highly integrated and developed), Country B (segmented and emerging) and Country C (becoming more integrated and emerging). Based on expectations and changes in integration, we should shift capital from country A.
Answer is to country C but I don’t understand explanation.
It says, when model becomes more globally integrated, required return should decline. As prices adjust to lower required return, market should deliver an even higher return than previously expected or required by the market. Therefore, allocations that are moving towards integration should be increased.
What does that mean? How do you go from required return should decline to market delivering an even higher return. Please help with confusion. Thanks