Emerging market equities offer growth at attractive valuations compared to developed markets

Emerging market equities offer growth at attractive valuations compared to developed markets

September 09, 2024

According to the chart below, the MSCI Emerging Markets Index is projected to experience greater earnings growth over the next 3 to 5 years (left axis) compared with developed markets, as represented by the S&P 500® Index and the MSCI EAFE Index.

Additionally, emerging market equities are trading at lower price-to-earnings ratios (bottom axis) than their developed market counterparts, indicating they may offer better value. This suggests that the market may not fully recognize the potential for long-term growth in emerging markets.

Relative valuations appear favorable in emerging market equities compared to developed markets

Relative valuations appear favorable in emerging market equities compared to developed markets

Source: FactSet. June 30, 2024. Past performance is not a guarantee of future results. Chart is for illustrative purposes only. Earnings per share (EPS) is a measure of a company's profitability that indicates how much profit each outstanding share of common stock has earned. Price-to-earnings (P/E) ratio is a valuation ratio of a company’s current share price compared to its earnings per share.

What this means for investors

Not only is there an attractive growth opportunity, but emerging markets also look inexpensive relative to the US and other developed markets. It may be an opportune time for investors to consider an allocation to emerging markets equities or to put additional money to work in the asset class. As the market tends to be less efficient than developed markets, emerging market equities are an attractive space for active managers.

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Past performance does not guarantee future results.

Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy.

The views expressed represent the investment team’s assessment of the market environment as of August 2024 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice.

Market risk is the risk that all or a majority of the securities in a certain market – like the stock market or bond market – will decline in value because of factors such as adverse political or economic conditions, future expectations, investor confidence, or heavy institutional selling.

International investments entail risks including fluctuation in currency values, differences in accounting principles, or economic or political instability. Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility, lower trading volume, and higher risk of market closures. In many emerging markets, there is substantially less publicly available information and the available information may be incomplete or misleading. Legal claims are generally more difficult to pursue.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

Charts shown throughout are for illustrative purposes only and not meant to predict actual results.

Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.

The MSCI EAFE (Europe, Australasia, Far East) Index represents large- and mid-cap stocks across 21 developed markets, excluding the US and Canada. The index covers approximately 85% of the free float- adjusted market capitalization in each country.

The MSCI Emerging Markets Index represents large- and mid-cap stocks across emerging market countries worldwide. The index covers approximately 85% of the free float-adjusted market capitalization in each country.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value and is often used to represent performance of the US stock market.

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