Amid the doom and gloom, there are pockets of the financial markets still in the throes of a bull run. One is emerging markets equities. Despite a sell-off during much of November led by the Asian markets, MSCI’s main emerging markets index is on course to deliver a strong performance this year and is up 35% through to mid-November. This figure is in line with the level of returns that emerging markets equities have delivered over the past five years. Investors should now be attempting to assess how much more value is to be found in these markets.
Two issues need to be considered: the technicals and the fundamentals. Each suggests that the party is far from over for the asset class.
Let’s consider the technicals. Although many emerging stock markets have hit all-time highs in recent months and look expensive on a historical basis, the truth is that compared with developed markets there are plenty of opportunities. First, on a P/E ratio of about 14.5 times, emerging markets are still trading at a slight discount to developed markets.
More important, earnings growth over the next 12 months is forecast to be far higher in the emerging markets.