Sunday Spectacle CCXIV

Emerging Market Valuations & Returns

Most people already know this but emerging markets tend to have lower valuations and produce higher returns. The difficulty is that emerging markets have much higher valuations, with a few countries/regions experiencing catastrophic declines. If you can avoid those blow-ups then emerging market generally offer higher return potential.

Having said all that, we had a massive global trade boom, with massive growth in developing countries--right from Brazil to China to Vietnam. It's not clear to me if we are entering a protectionist era where emerging markets, who tend to be exporters and hence will get hit asymmetrically during any trade war, will suffer for a long period, maybe a decade.

(source: "Trump Puts U.S. Valuation Premium at Risk," Nir Kaissar, Bloomberg, February 14, 2017)


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