Will Emerging Markets Maintain Their Premium?

The following was excerpted from Agile Investments' Monthly Market Review:

On several valuation measures, emerging markets have moved to premium valuations relative to large-cap developed markets (including U.S) stocks. Despite huge price gains in emerging markets over the past five years (35% annualized!), investors should maintain long-term commitments to the asset class.

Moreover, should another leg down develop in global stock markets, emerging markets may be the most attractive asset class to add exposure. Emerging markets will be the primary driver of global growth over the next several years; it stands to reason that their stock markets will continue to outperform, albeit with the usual volatility. Eventually, it seems reasonable to expect emerging markets to trade at substantial and consistent premium valuations to developed markets.

Comments

[linear algebra:]

Loking at yourchart, the only measure on which the emerging markets stocks are trading at a premium to U. S. Stocks (regardless of capitalization) is price to book. And I'll bet, given the relative levels of M&A versus de novo capex, that there is a great deal more good will on the books in the Sates than there is in developing world economies. Also, something tells me that the expectations of near term earnings growth in the emerging markets vs. the States, implied from the respective differences between trailing 12 months p/es and forward earnings, is a great deal more reasonable there than it is here. So, while emerging markets are trading at a premium to historic valuations, and global equities generally, I don't see the premium to U.S. valuations, though that may suggest that U.S.equities are the over valued asset class and not that more exposure to emerging markets is dictated.

2008 May 19 11:41 AM