Tuesday, May 6, 2014

Emerging Markets Aren’t All the Same (excerpt)

Emerging Markets have been mostly underperforming other stock markets since 2011. Over the same period, the forward earnings of the EM MSCI has been mostly falling after rebounding rapidly during 2009 and 2010. That might explain why the index’s valuation multiple is low.

However, forward earnings have also been falling for the EMU MSCI and UK MSCI since 2011, and they both have higher P/Es of 13.9 and 13.4, respectively. So EMs still look cheap relative to Europe. They are especially cheap relative to the 15.3 multiple in the US, which is clearly discounting that the index’s forward earnings continues to rise into record territory, as discussed below.

What about the forward earnings of individual EMs? India, Indonesia, and South Africa have relatively expensive P/Es because their forward earnings are making new highs. On the other hand, Mexico’s forward earnings is declining. China seems cheap, especially since its forward earnings is also in record-high territory, but it’s been falling recently. Brazil’s forward earnings looks terrible, continuing to flat-line as it has been doing since 2006! Turkey has been flat-lining since mid-2011, but may be starting to move to new highs again.

Today's Morning Briefing: Urge to Emerge. (1) Rotating in Chicago. (2) A year of living less dangerously. (3) Hunting for value among EMs. (4) Some EMs are cheaper than others. (5) Forward earnings rising to record highs in India, Indonesia, and South Africa. (6) China looking toppy. (7) Mexico isn’t cheap. (8) Brazil’s earnings in a coma. (9) Fragile Five leading the EM rally. (10) As expected, Q1 earnings season showing typical better-than-expected results. (11) No sign of profit margin reverting to the mean. (More for subscribers.)

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