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- This is a great article which shows the danger of looking at the index level when arguing about valuation.
- At index level Emerging Markets (EM) trade at 12x P/E vs. the US at 17x = attractive right?
- If you dissect by sector the valuation difference is entirely in domestic focussed sectors (e.g. Financials) and mining/oil & gas.
- Global facing sectors have very similar valuations.
- So an investor in emerging markets is basically taking a bet that the former valuations will close … a very different proposition.
- i.e. you need China Construction Bank to re-rate vs. Bank of America.
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