Better Value in Emerging Markets
Global Equity-Market Price-to-Book (P/B) Ratios
Compared with historical averages, global equity markets are expensive, especially in the United States and other developed markets.
As of March 31, 2019, the average price-to-book ratios of companies represented in the S&P 500 and developed markets are trading above their 20-year averages. Emerging-market stocks, in contrast, are trading only slightly above their 20-year averages on a price-to-book basis.
For investors seeking to tap the growth potential of equities, this disparity suggests more attractive values can be found in emerging markets. In particular, we see opportunities in Asia. Emerging-market Asian economies are poised to expand an average of 6.5% in 2018, compared with 4.9% for emerging-markets more broadly.1 Earnings-per-share growth forecasts for emerging Asia exceed those in Latin America, Europe, the Middle East and Africa.2 Finally, improved trade balances and lower rates of inflation in Asia have proven to be defensive against rising yields.3 During the sell-off of emerging-markets currencies in the second quarter of 2018, emerging Asian currencies fared much better than those in Latin America, Europe, the Middle East, and Africa.4