Emerging Markets: Back to the Bargain Bins
By Paul Price
Stock markets of emerging countries outperformed those of first-world nations from 2004 through mid-2008. They crashed hard later that year.
Intrepid investors who loaded up on emerging market equities after the 2008 decline saw huge gains over the next two years.
The chart below shows the ratio of emerging markets valuation (represented by EEM - emerging equity markets) compared to the S&P 500. History shows that EEM normally trades at relatively higher valuations. There has been solid support at a ratio of 0.22 over recent years.
The relative valuation of the emerging markets is now about as low as it has been since the latter part of 2005. Significant rallies followed each sojourn back to that 0.22 level. Market Shadows has been a buyer of both the Templeton Emerging Markets Fund (EMF) and the Vanguard FTSE Emerging Markets ETF (VWO) in recent days.
This group has been dominating the most oversold ETF list. They are very cheap and are likely to bounce back quickly and sharply. The figures below were as of June 21st and do not include Monday's negative price movements.
The Templeton Emerging Market Fund (EMF) is a closed-end fund, not an ETF.
Our Market Shadows' Virtual Value Portfolio page provides more details.