Emerging Market Stock Valuations Suggest Profit Deterioration Prospects - Since the 2008 Financial Crisis
(Bloomberg): For investors in emerging markets, the outlook that the situation is about to deteriorate significantly before improving can be read from stock valuation signals.
The index of emerging market stocks, the actual price-earnings ratio (PER) based on corporate profits for the past 12 months of the MSCI Emerging Markets Index, fell below the predicted PER based on profit forecasts for the next 12 months. It can be seen how analysts anticipate that corporate profits will decline in the future at a faster pace than now.
Simon Kihano-Evans, chief economist at Gemcorp Capital Management, said, “This is probably an indication that we are about to reach a turning point. It reflects a situation where yields rise rapidly at a timing where recession (recession) anxiety makes investors increasingly concerned. In order for corporate profit prospects in emerging markets to turn upward again, it is necessary for the hawkish stance of the US Federal Reserve System to ease and the dollar exchange rate to calm down.”
Since an increase in corporate profit, which is the denominator of PER, is expected, in many cases, predicted PER falls below actual PER.
This phenomenon has occurred with respect to PER since 2008/10, right after the global financial crisis occurred. After that, it was a recovery phase exceeding 150% from 09/3 to 11/5.
Malcolm Dawson, portfolio manager of Future Asset Global Investments, pointed out that while resource and energy stocks accounted for about 30% of the overall index in 2008, it is now close to 14%. Diversification progressed in emerging markets, showing recognition that “they are in a more advantageous position than benefiting from interest rate policy changes.”
The index of emerging market stocks, the actual price-earnings ratio (PER) based on corporate profits for the past 12 months of the MSCI Emerging Markets Index, fell below the predicted PER based on profit forecasts for the next 12 months. It can be seen how analysts anticipate that corporate profits will decline in the future at a faster pace than now.
Simon Kihano-Evans, chief economist at Gemcorp Capital Management, said, “This is probably an indication that we are about to reach a turning point. It reflects a situation where yields rise rapidly at a timing where recession (recession) anxiety makes investors increasingly concerned. In order for corporate profit prospects in emerging markets to turn upward again, it is necessary for the hawkish stance of the US Federal Reserve System to ease and the dollar exchange rate to calm down.”
Since an increase in corporate profit, which is the denominator of PER, is expected, in many cases, predicted PER falls below actual PER.
This phenomenon has occurred with respect to PER since 2008/10, right after the global financial crisis occurred. After that, it was a recovery phase exceeding 150% from 09/3 to 11/5.
Malcolm Dawson, portfolio manager of Future Asset Global Investments, pointed out that while resource and energy stocks accounted for about 30% of the overall index in 2008, it is now close to 14%. Diversification progressed in emerging markets, showing recognition that “they are in a more advantageous position than benefiting from interest rate policy changes.”
Author: Bloomberg
Last Updated: 10/31 (Mon) 14:53
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