Emerging market (EM) equities are having a great year. As of Oct. 13, the MSCI Emerging Market Index is up 33%. These returns are prompting more investors to get interested in emerging markets, but is already it too late for ETF investors?
Relative Valuations
At CLS, we believe emerging market stocks are still attractive, as they remain relatively cheap. For instance, the chart below examines a combination of valuation metrics (price-to-sales, price-to-book, price-to-cash flow and price-to-earnings) since 2001, and shows that emerging markets on average (represented by the red line) trade at a 15% discount to the overall world stock market. In other words, emerging market equities are typically inexpensive.
Currently, even though emerging markets have had an incredible run, they remain undervalued, and are trading at a 23% discount. In other words, despite the recent markup in prices, they are still on sale.