Emerging Markets Currently Offer More Bang for the Buck

Emerging Markets Currently Offer More Bang for the Buck

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Global Equity FVMR Snapshot – October 2016


The consensus estimate for 2016 ROE has been adjusted upwards for Emerging Markets and is now at 11.2% (versus 10.8% in August). Developed Markets with ROE of 11.7% are only more profitable in terms of ROE than Emerging Markets because of the US.

Looking at Developed non-US the ROE becomes 9.4% versus Emerging Markets at 11.2%. Latin America is the most profitable region among Emerging Markets with an expected ROE of 11.8% in 2016.

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Besides Japan, companies in Developed Markets pay out more of their profits to shareholders relative to Emerging Markets. Developed Europe has the highest dividend payout ratio at 58% in 2016 versus the World average at 44.3%.


US increases the valuation of Developed Markets, trading at 2016 17.7x PE and 2.1x PB. If we exclude the US, Developed Markets trade in line with Emerging Markets on price-to-book. Developed non-US still trade higher on 2016 15.8x PE versus Emerging Markets at 13.6x PE.


Similar to the US bringing up valuations for Developed Markets, Emerging Europe has a dirt-cheap valuation that drags down Emerging Markets. Taking ROE into account, we then can see that Emerging Markets are more attractive than Developed non-US.

Looking at ROE/PB, we then can see that Emerging Markets at 2016 7.4% ROE/PB are more attractive than Developed Markets at 5.7%.

Even though Developed Markets have higher ROE, it’s less attractive on ROE/PB. Most ROE for the price-to-book you pay you’ll find in Emerging Europe where you get 13% ROE for every unit of PB.


Consensus expects earnings growth to be slow in 2016 more or less across the board. The two standing out is Latin America that is expected to rebound and see EPS grow by 52.7% in 2016, and Japan where earnings are expected to grow by 11.9%. Consensus has a more positive outlook for 2017 where EPS across the globe is expected to grow by about 13%.

The past 2W price performance has been weak across the board, ranging from -1.0% in Emerging Europe to 1.6% in Latin America, and -0.4% on average for the World.


Gearing, in terms of net debt-to-equity, in Latin America has decreased to 63.1% in the past 12 months from 81.7% in 2015, though it’s still highest in Emerging Markets. North America is the only region where gearing has increased in the past 12 months relative to 2015.

Price volatility in the past 3M has been higher in Emerging Markets; driven by volatility in Latin America. Japan has been the most volatile in the past 3M though. Comparing 3M volatility to 1Y volatility, we can see that volatility has decreased in the World markets.


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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.


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Dr. Andrew Stotz, CFA is the CEO of A. Stotz Investment Research, a company providing institutional investors with ready-to- invest portfolios in Asia that aim to beat the benchmark through superior stock selection. The company also provides buy- and sell-side clients with financial models to value any company in the world and World Class Benchmarking to determine what companies are financially world class. Previously, as Head of Research at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers Polls for 2008 and 2009. He was also voted No. 1 Analyst in Thailand in the 2009 Institutional Investor magazine All-Asia Research Team Report. Andrew earned his PhD in finance at the University of Science and Technology of China in Anhui province, with a focus on answering questions raised by fund managers and analysts during his career about picking stocks and managing portfolios. In addition, Andrew has been a lecturer in finance for 22 years at various universities in Thailand. Since 2013, he has been the president of the CFA Society of Thailand. He is also the author of How to Start Building Your Wealth Investing in the Stock Market.

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