Emerging And Developed Markets Have Been Equally Volatile

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Includes: ACWF, ACWI, ADRD, ADRE, BRGL, DBEF, DBEM, DDBI, DEFA, DGT, DPK, DTEC, DZK, EDBI, EDC, EDZ, EEM, EEME, EET, EEV, EFA, EFO, EFU, EFZ, EMEM, EMF, EMLB, EMSA, ESGD, ESGE, ESGF, ESGW, EUM, EWEM, FDT, FEM, FIGY, FIHD, FLQE, FLQG, FLQH, FWDI, GAB, GLQ, HACW, HDMV, HEEM, HEFA, HFXI, IDEV, IDHQ, IEFA, IEMG, KEMP, KLDW, KLEM, MFEM, MFLA, MSF, PPDM, PPEM, RFDI, RFEM, ROAM, RODM, RWV, SCHE, SPEM, URTH, VEA, VGFO, VT, VWO, WBIL, XMX, XSOE
by: Alexander Wetterling, CIPM

Global Equity FVMR Snapshot

Fundamentals: US still offers the highest ROE

Global markets have a return on equity (ROE) of 14.0% and a 39.1% dividend payout ratio (DPR) according to consensus expectations. In 2018, Emerging markets are expected to be slightly less profitable with an ROE of 13.0% versus Developed markets at 14.2%.

If we look at Developed markets excluding US, we can see that ROE is only at 11.2%. North America (of which US is the major part) is, in fact, the only region that has a higher profitability than Emerging markets.

If you're looking for dividends, then Developed Europe offers the highest DPR. Japan offers the lowest DPR and the lowest ROE.

Valuation: Emerging Europe offers the best ROE/PB

The 2018CE* price-to-earnings (PE) of global markets stands at 15.5x. Emerging markets trade below Developed markets at a PE of 12.2x and this is still the case if we exclude US that has the highest PE. Lowest PE, by a big margin, is found in Emerging Europe. Taking growth into account, looking at the PEG ratio, Emerging markets trade at a PEG ratio below 1.0. Only North America among Developed markets trades at a PEG ratio below 1.0.

Looking at price-to-book (PB), Emerging markets seem to trade well below Developed markets. However, Developed non-US actually trades in line with Emerging markets at 1.6x PB. Taking profitability into consideration, looking at ROE/PB, Emerging markets trade at 2018CE* 8.2% versus 6.3% for Developed markets. Among Emerging markets, Emerging Europe appears most attractive at ROE/PB of 14.5%.

Momentum: Latin America and Japan have seen the best price performance

Emerging markets and Developed markets show 2018CE* EPS growth that is more or less in line. Japan and Developed Europe have 2018CE* EPS growth in the single digits though. North America and Latin America offer the highest earnings growth.

In terms of the past one year's price performance, Emerging markets have returned 15.7% versus Developed markets at 11.5%, excluding US and Developed markets only gained 6.7% in the past one year. Within Emerging markets, Latin America has had the best 0ne-year price performance at 18.8% and Japan has performed the best among Developed markets at 15.8%.

Risk: Emerging and Developed markets have been equally volatile

Gearing measured as net debt-to-equity is highest in North America and Latin America.

If we look at volatility, Emerging markets are normally more volatile than Developed markets. However, in the past three months volatility has been the same.