ChartBrief #3 Emerging Market PE Ratio

September 21, 2016

This ChartBrief looks at emerging market equity valuations. Earlier this week in the Tuesday Technicals I outlined the short-term bearish outlook for emerging market equities given bearish divergence and extreme bullish sentiment. So I thought it would be helpful to show you how valuations are looking.

The index used is the MSCI Emerging Markets Index, and valuations are forward PE (price on IBES consensus forward 12 months earnings) both absolute and relative to the MSCI World Index (developed markets).  You can kinda ignore the 90's, as the new normal forward PE ratio ranges around 10-15 (post 2000 period). Thus at present you can say that in absolute terms (the black line) EM forward PEs are around the top end of the range (expensive vs recent history). On a relative basis they remain cheaper than developed markets at about 75% (12x vs 15.8x) - but this relative cheapness has become slightly less compelling. So in summary you wouldn't call emerging market equities cheap on a forward PE basis, but you wouldn't call them extremely expensive either.


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