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Valuations of Emerging Market Equities Were Flat Last Week

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Dec. 4 2020, Updated 10:53 a.m. ET

Improving valuations

Emerging market equities are currently trading at 11.5x on a one-year forward earning basis. The valuations have remained constant when compared with the previous week mainly due to relatively flat gains from the indices. Emerging markets (EEM) have historically been valued at a discount when compared with US equities (SPY) and European equities (EFA). But these discounts have diminished with time as a result of the broader scope of growth in emerging markets.

The valuations for the week ended April 17, 2015, remained flat when compared to the reduced valuation of US and European equities. Overall, the faster growth in some of the major emerging markets will help to improve the valuations of the region.

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The impact of oil prices

Commodity prices and oil (USO) prices have recovered marginally over the past few weeks. South Korea (KOSPI) and Brazil (IBOV), along with China, have also improved as a result of inflation and commodity prices. The improving oil prices will be beneficial for Russia, whose fiscal 2015 GDP forecast is negative 3%. The lower oil prices have been beneficial for both India and China, as they import the majority of their oil from oil-producing nations.

Asset managers will have to redeploy their capital on the short- to medium-term horizon in order to take advantage of the shifts across emerging market economies. Managers that will likely benefit from the good performance of emerging market equities include BlackRock (BLK), Fidelity Investments, Franklin Resources (BEN), Goldman Sachs (GS), HSBC Asset Management (HSBC), and Blackstone (BX).

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