Last week, iShares MSCI Emerging Markets Indx (ETF)(NYSEARCA:EEM), the most actively traded ETF focused on emerging markets, received an order worth $1.6B – its largest single order ever.
Investors are zooming in on battered emerging market stocks that are offering highly cheap valuations said to be out of sync with their fundamentals. The U-turn in their psyche is starkly apparent from the fact that whereas they withdrew over $58 billion from emerging markets during the first quarter of this year, they pumped in $4.7 billion into emerging market stock and debt funds during the week ended April 9, according to statistics from the Financial Times, quoting data provider EPFR.
The chart below shows that over the past few days, the S&P 500 (the thick black line) is underperforming the iShares MSCI Emerging Markets Indx (ETF)(NYSEARCA:EEM) (the dotted line).
Emerging markets ‘value’ – the flavor of the month?
The chart above also shows that emerging markets have had a strong run-up since early March. However, given that a typical emerging market ETF could be investing across various markets and sectors, a bit of ‘drill down’ is called for to understand investor preferences.
SocGen Global Quantitative Research analysts Andrew Lapthorne, Rui Antunes, John Carson, Georgios Oikonomou, Michael Suen, Josh Cherian and Yohan Le Jalle report on the performance of emerging markets in their April 8, 2014 ‘Popular Investment Screens’ research note.
“With emerging markets rallying strongly across all regions in March, it was value that showed best performance,” observe the analysts. “Quality still managed to keep up and showed good absolute performance, particularly among emerging Europe companies.”
No surprises then, that SocGen’s Graham and Rea model, as well as its Greenblatt model, turned in stellar performances last month across emerging markets.
Graham & Rea
“The Graham & Rea model was up in all emerging market regions, showing the best performance in EMEA and Latin America (both up 3.5%). Overall in emerging market, it was up 1.4%,” remark the analysts.
Greenblatt’s Magic Formula the star in March
“The Greenblatt model had the best performance last month, with the long/short up 2.8% overall in emerging market, 3.3% in Asia, and 2.6% in Latin America. In EMEA though, it was off -1.4% last month,” says the report.
Here is a table that shows SocGen’s top 20 Greenblatt model emerging market companies in order of their overall Greenblatt ranking.
| Name | Country | Sector |
Mcap-mUSD |
ROC% |
EY% |
ROC-RANK |
EY-RANK |
OVERALL-RANK |
| AES TIETE-PREF | Brazil | Utilities |
808 |
45.6 |
18.2 |
37 |
8 |
1 |
| LENOVO GROUP LTD | China | Technology |
6,892 |
99.5 |
11.7 |
2 |
43 |
1 |
| CEMIG-PREF | Brazil | Utilities |
5,098 |
53.0 |
13.6 |
24 |
24 |
3 |
| INDO TAMBANGRAYA | Indonesia | Basic Materials |
848 |
40.9 |
14.7 |
45 |
19 |
5 |
| REUNERT LTD | South Africa | Industrials |
1,112 |
47.6 |
12.5 |
35 |
34 |
6 |
| ECOPETROL | Colombia | Oil & Gas |
10,102 |
42.6 |
12.0 |
40 |
40 |
7 |
| VODACOM GROUP | South Africa | Telecommunications |
4,597 |
65.6 |
9.7 |
14 |
87 |
8 |
| BHARAT HEAVY ELE | India | Industrials |
1,928 |
28.1 |
19.5 |
104 |
3 |
9 |
| ENERGIAS DO BRAS | Brazil | Utilities |
1,087 |
29.3 |
13.9 |
93 |
22 |
10 |
| KGHM | Poland | Basic Materials |
5,046 |
25.2 |
19.7 |
121 |
1 |
11 |
| AMERICA MOVIL-L | Mexico | Telecommunications |
34,770 |
33.8 |
11.4 |
72 |
53 |
12 |
| HIGHWEALTH CONST | Taiwan | Financials |
776 |
37.6 |
10.6 |
55 |
70 |
12 |
| CIA HERING | Brazil | Consumer Goods |
1,698 |
47.3 |
9.7 |
36 |
90 |
14 |
| KIA MOTORS CORP | Korea | Consumer Goods |
14,679 |
25.5 |
15.1 |
119 |
15 |
15 |
| BELLE INTERNATIO | China | Consumer Goods |
4,623 |
29.2 |
11.9 |
94 |
42 |
16 |
| GREAT WALL MOT-H | China | Consumer Goods |
5,181 |
35.0 |
10.4 |
66 |
71 |
17 |
| PAO ACUCA-PREF | Brazil | Consumer Services |
6,188 |
32.2 |
11.1 |
79 |
60 |
18 |
| CYFRPLSAT | Poland | Consumer Services |
1,233 |
77.2 |
8.3 |
7 |
136 |
19 |
| LG CORP | Korea | Industrials |
5,162 |
33.8 |
10.4 |
71 |
73 |
20 |
| TURK TELEKOMUNIK | Turkey | Telecommunications |
1,266 |
35.2 |
10.2 |
65 |
79 |
20 |
