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Where the world’s largest asset manager is bargain shopping right now

Matt Nesto

In a year that has seen dozens of different investment categories rising twenty, thirty or even sixty percent or more, the list of 2013 laggards, by comparison, is actually stunningly short.  

It’s pretty much a race to the bottom between gold (GLD), long-dated treasuries (TLT), and emerging markets (EEM), the latter of which Russ Koesterich, chief investment strategist at BlackRock, says is worth a closer look.

“We’re in a world where if you’re looking for a bargain you do have to go further afield,” he says in the attached video. “I think one of the few assets classes that right now appears reasonably priced to cheap are emerging market stocks.”

By cheap, Koesterich points to a book value that is about 25% less than what you’d pay for developed markets stocks today, as well as a price to earnings ratio that’s 35% less expensive.  

This is not to say that the US is doomed, he points out, but rather that the way forward for the S&P 500 will not be as easy as the recent past.

“The truth is there are very few deals right now.  We’ve had a great run for stocks. I don’t think we’re in bubble territory but US stocks are no longer that cheap.”

On the contrary, when emerging markets have been this cheap relative to developed markets, Koesterich says they have historically performed well over the next year or two.  

Even so, he warns, all emerging markets are not equal and investors still need to be discriminating. In particular, he says, fast GDP growth alone is not enough of a reason to own a particular country or company.

“The argument for emerging markets is a longer term argument,” he says, noting that they may not be the best place to invest over the next three or six months. However, if you’re looking to park in a place for a year or two, and not overpay, Koesterich says unequivocally that the developing markets are “one of the few parts of the world where I can actually find a bargain today.”