Las valoraciones siguen muy
interesantes en la mayoría de los casos.
The trade-war-escalation is a decidedly
negative gear shift for it has been a looming “tail risk” for markets.
And I use that decidedly overused term
very lightly, as a tail risk is supposed to be something out of left-field,
rather than something that’s been a source of constant focus and rumination.
But anyway, one of the immediate
casualties of the escalation has been emerging market equities, with a number
of Asian markets getting particularly clobbered.
The emerging markets (NYSEARCA: EEM) have
given back some of their hard-earned equity gains that had been chalked up
since the Dec lows for Emerging Market (EM) equities.
On the bright side, it’s helped push
valuations back towards more interesting levels. I remarked on this in
my weekly report last week (talked EM equity valuations +
the evolving macro/sentiment picture). But I also previously talked about
it a few weeks back when I noted that the valuation story was looking less
compelling…
On with the key chart for today, this
chart has a lot going on, and needs some explanation, but the key takeaway is
that EM valuations look reasonable.
The chart shows the median and upper/lower
quartiles of the blended historical z-score of the trailing PE, forward PE,
price to cash earnings, and price to book ratio, across the 24 countries which
are currently included in the MSCI emerging markets index. In other
words, it gives a generalization of where valuations are tracking across EM
countries relative to history.
The median country looks cheap vs history,
and for long term investors fortune tends to favor the buyers of lower rather
than higher valuations (there are of course many exceptions to this across
countries and epochs).
The logical next question is who what
where? …or at least who/where?
Next chart shows the valuation map for EM
countries, and for those who pay any attention it should come as little
surprise who occupies the top right vs bottom left quadrants.
For completeness, the chart shows the
blended PE ratio across the bottom axis, and on the side axis: where the
current valuation reading sits vs history for that particular country.
See I like to look at things this way,
because often times you’ll be looking at a country that has a low PE – but then
you notice that it’s not particularly out of the ordinary for that country e.g.
compare and contrast Brazil vs China.
But for EM more broadly (i.e. talking
about an index/aggregate level), there’s a few simple drivers.
Given the lower starting point valuations,
EM equities are at an advantage but still need a few things to go right.
The nascent economic recovery / stabilization needs to gain
traction, China stimulus needs to come through, and ideally DM/US don’t go into
a full blown recession. A trade deal might be nice, but not essential.
As for what could go wrong, it’s the usual
things – as noted if the US or developed markets in general rollover into
recession it’s going to be hard for EM to perform. The other threats
overhanging are the possibility of a stronger dollar and a commodity market re-bear.
It’s not clear cut or easy, because both
the negative and positive drivers I just mentioned are all entirely
plausible. Thankfully, over the long run valuations have a habit of
speaking for themselves, so I’ll leave you on that note.
Abrazos,
PD1: India es la excepción, la
más cara de todos los emergentes, ya que sigue subiendo y subiendo…, marcando
máximos históricos:
¿Le tocará a otro emergente
seguirle sus pasos…? Eso espero. Es un tema de “moda”, de impulso de inversores
extranjeros que invierten ahí a tope, ante las dudas de otros países. Yo no lo
recomendaría a estos precios…
PD1: De todas las virtudes, la
más importante es el amor. Ya te sabes casi de memoria la lectura preferida por
los novios para casarse, la famosa Carta a los Corintios, que por su
preciosidad te copio un trozo:
…El amor es paciente, afable; no tiene envidia; no presume ni se
engríe; no es mal educado ni egoísta; no se irrita; no lleva cuentas del mal;
no se alegra de la injusticia, sino que goza con la verdad. Disculpa sin
límites, cree sin límites, espera sin límites, aguanta sin límites. El amor no
pasa nunca…
Cuando nos morimos es la única
virtud que nos queda en el cielo. La esperanza ya no tendrá sentido y la fe,
tampoco. Nos quedará la caridad, el amor…
