linear algebra

Will Emerging Markets Maintain Their Premium?

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.

BMW Shifts Cars from U.S.: A Sign of Decoupling?

Interesting point, from a European perspective. From an Asian one, the Eurozone has replaced the United States as China's largest trading partner. One need not deny that the American consumer is a critical piece of global consumption patterns to acknowledge that the role of the American consumer is slowly diminishing. And, if it's true that an American recession would actually make it easier for emerging Asian economies such as India to control overheated growth and such as the Phillipines to keep a lid on food and commodities inflation, that puts the United States in the rather awkward of position of watching its internal discomfort have positive international repurcussions, which, of course, is the antithesis of the old 'our dollar, your problem'/'when America sneezes the world catches cold' attitudes.

Stock Valuations On the Rise

This is a point with very interesting implications. I have been waiting to see something about the odd direction of multiples, since generally p/e's contract, rather than expand, in recessions. What's happening strongly suggests that there may be a second leg down in the bear market, driven by such a contraction, if it comes. If so, there are a couple of different reasons that will be used to explain such a contraction.
Also, the contrast with the performance (in terms of multiples) of emerging markets equities is something to think about. In terms of index levels, emerging markets equities have declined even more sharply than the S&P 500, and all the decline has been in multiple contraction--the only offset has been slight, and attributable to earnings growth. Maybe that's increased risk aversion, and will be enduring. Perhaps it's simply price correlation across the asset classes, and there will be a bit of whiplash and divergence if there's a second leg down in the developed world markets.