EM Value Stock Screens Give Conflicting Results

EM Value Stock Screens Give Conflicting Results

Value strategies are still outperforming in emerging markets, even as heavy interest in cheap stocks has made it hard to find value in more developed markets, but which region offers the best deals depends on which stock screen you look at, though long-short strategies are outperforming long-only and short-only strategies in all EM regions.

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Citi analysts’ Graham & Rea stock screen Graham and James Rea (Graham’s partner in conducting the studies) is up 1.1% this month, with 1.2% gains in Asia, 0.5% gains in EMEA, and no growth in Latin America, following a year of strong growth in EMEA and Latin America. The long-short Graham & Rea screen continues to outperform the long only and short only strategies, but the relative difference has stayed flat for the last two years. The Graham & Rea results are in line with what you might expect listening to analysts: Asia is more interesting than other emerging markets, but nothing looks particularly cheap.

graham excess performance

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Examples of stocks screens

Citi’s Joel Greenblatt stock screen, on the other hand, was led by Latin America which grew 5.3%, followed by a small 0.1% gain in EMEA and a 0.5% contraction in Asian markets, for a total gain of 0.2%. Performance between the three regions didn’t vary much between 2009 and 2011, but this is the second time Latin America has pulled away from EMEA and Asia in the last two years. Unlike last time, Asia’s underperformance and EMEA’s flattening out are forming what appears to be a more permanent divergence. This outperformance by Latin America is particularly interesting considering that analysts tend to be more bullish on Asian than Latin American equities for 2014. The long-short Greenblatt screen steadily outperformed the long-only and short-only screens between 2007 and the first quarter of this year, but long-short has been losing ground for the last few months.

Greenblatt excess performance greenblatt long short by region

Greenblatt outperforming

The Greenblatt and Graham & Rea screens continue to outperform the other popular investment screens that Citi regularly covers, with Greenblatt outperforming by about 40% since 2005, even though the short-only version has underperformed by about 5%, and the Graham & Rea screen is up about 20% even though the short-only screen is down more than 25% over the same time period.

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