Why emerging Asian markets show particularly strong valuation
3 must-read reasons to consider emerging Asian markets (Part 3 of 7)
This begs the question: Where in the EM world do I see opportunities? On a relative basis, EMs in Asia, including China, appear particularly attractive. Here are three reasons why.
Relative valuations. Within the emerging world, Latin America is the only region that is trading at a premium to its historical average, thanks to a sharp climb in Brazilian equities without a corresponding increase in earnings. Meanwhile, EMEA is trading at a significant discount compared to its history, thanks to the persistent and understandable discount on Russian equities.
Market Realist – The graph above shows 12-month forward price-to-earnings or PE ratios as estimated by JP Morgan EM equity research. As you can see above, Latin America (or LATAM) seems to be the most expensive in the emerging market equities (EEM)(VWO) segment. The EMEA segment seems to be the least expensive.
Market Realist – The graph above shows the PE multiples by country as estimated by JP Morgan research. Russia (RSX) seems to have lower valuations due to the current conflict with Ukraine dampening the markets. Brazil (EWZ) has recently seen a sharp increase in the price of its equities despite low corporate earnings.
India (EPI) appears to be overvalued as well, but the outlook for Indian equities seems to be quite positive, with positive election results favoring the markets. The government’s ability to deliver reforms will be crucial. China (FXI) looks to be a good buy with its PE multiples hovering around 9x as compared to 16x for the U.S. markets (SPY).
Qatar and UAE seem to be highly valued as well. Qatar and UAE were part of the frontier market segment earlier but they gained emerging market status recently.
Market Realist – The graph above from BlackRock shows how emerging market valuations are still considerably cheaper than developed markets’.
Continue reading to the next part of this series to see why Asian emerging market valuations are largely in line with historical averages.
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