Emerging Markets: Could bullish indicator be a sign to buy?
Brokers Note: Sector has lagged developed markets since 2011 by some 40% according to research by broker Cantor Fitzgerald, who have identified a positive indicator that might signal it’s time to buy back in.
Back in January 2011 Emerging Market (EM) equities were trading at a 10% premium to Developed Market (DM) equities on a P/B basis (measures the price divided by the book value, which is the assets available if the business were to go bust), they are now trading at a 28% discount according to Cantor’s Monica Tepes.
At the current level the discount is even wider than the 15% recorded in at the end of 2008; this was subsequently followed by an approximate 70% outperformance over the next two years.
On a P/E basis which is the price per share divided by the earnings per share EM is now on 1.4 time earnings as opposed to 17.4 times, a discount of 34%.
Just to get back to where they were previously EM equities would need to outperform DM equities by around 70%.
EM investment trusts are currently trading on undemanding ratings
Cantor’s investment trust picks for a rising market include Templeton Emerging Markets (LON:TEM), which is also on WhichInvestmentTrust.com Buy List, JPMorgan Emerging Markets (LON:JMG) and Genesis Emerging Markets (LON:GSS). In weak markets we would expect Utilico Emerging Markets (LON:UEM) to perform best.
With the exception of the Templeton trust, all are trading below their 12 month average discount.