Emerging market PEs back at pre-crisis levels

By Prieur du Plessis, on May 14th, 2010 posted in: Emerging markets, Investment, Stocks

Corporate profit growth has seen a steady improvement in recent times. However, one should be cognizant of earnings growth being only one of the drivers of stock returns, the other being price/earnings (PE) multiple expansion. The graph below, courtesy of BCA Daily Research, shows emerging market multiples are back at pre-crisis levels, suggesting the upside potential could be limited for now.

In short: In the absence of much scope for a further increase in PEs, especially with interest rates in many developing countries bottoming out, emerging stock markets require sustained earnings growth to take prices to higher levels. This is no longer a “dart board” market and individual country selection has again become key.

Source: BCA Daily Research, May 13, 2010.

Did you enjoy this post? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

More on this topic (What's this?)

Investing in Emerging Market Multinationals (Investment U, 2/2/12)

Investing in Emerging Markets Infrastructure (Investment U, 1/19/12)

The Best Emerging Markets for 2012 – Part 2 (Wall Street Daily, 12/26/11)

Read more on Emerging Markets, CORPBANCA at Wikinvest

Chirag Shah

May 14, 2010 at 3:42 pm

No arguments with the above but what I’d really like to know is whether corporations in the emerging markets have hit, missed or exceeded their consensus earnings forecasts. This, in my opinion, will tell us how vulnerable these markets are. Can anyone shed any light on this?

jim dragun

May 14, 2010 at 4:31 pm

Dear Mr. Prieur du Plessis,

Thank you for your interesting article on PE ratios for emerging markets. In general, what are considered to be “high” (i.e. time to sell) and “low” (i.e. time to buy) PE ratios?