Mark Mobius on emerging market valuations
I yesterday published a short post entitled Earnings into focus, dealing with stock market valuations in the US. But what about emerging market valuations? The following comments have just been received from Mark Mobius, Templeton Asset Management’s emerging markets guru:
“Many investors are now concerned about the ‘high’ price/earnings (P/E) ratios in emerging markets given the rally last year. I agree that the P/Es have risen but I think that they have done so from a very low base. We have seen market increases of 80-100% or more from the bottom in many of these markets, but I still don’t think valuations are excessive.
“Over the years, we have discovered that one of the best single indicators of value is the price-to-book value (P/BV). If you look at average valuations over the last ten years, you will see that the low point was about one time P/BV and at the high was about three times P/BV. We are now about two times P/BV. So in terms of the historical valuations, we appear to be in the middle of the range – not excessive, but not as cheap as we were before. Hence, we are a bit cautious on valuations in some regions like Greater China as well as in general for the emerging market universe.
“Nevertheless, on a relative basis, emerging market economies seem to have done much better than those in the developed world. I believe the kind of premium that the market is currently placing on these emerging market valuations is justified, to some extent. Unless there is certain monetary tightening in these emerging market economies, I think current valuation levels are sustainable. We have to bear in mind that most emerging economies are generally much better off than developed economies in terms of earnings growth expectations.”
I share these sentiments, but am always cognizant of the illiquid nature of some emerging markets and also governance issues that may from time to time give rise to additional volatility.
Source: Mark Mobius, Franklin Templeton, January 15, 2010.
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