Monday, November 10, 2008

Emerging Markets Stocks Reveals Deep Value

The rapid selloff in the global markets has led to massive adjustments in corporate valuations in emerging markets.

What used to be deemed as "pricey" has now turned to near "fire sale" prices.

According to Jack Dzierwa, Global Strategist of US Global Investors (emphasis mine),

``First, as we’ve said earlier, it’s important to not lose sight of fundamentals, which in the long run will be the driving force in the markets. In terms of valuations, the trailing price-to-earnings ratio hit an all-time low of 6.5x in mid-October, with an equity risk premium of 1,100 basis points.

``It is likely that investors are noticing these compelling valuations, as in the last two weeks higher stock prices in the emerging markets universe have driven trailing P/E up to 8.2x. While these P/Es have risen, emerging markets are still trading at a 27 percent discount to the developed markets universe.

Current valuations represent signs of morbid fear than of reality.

As of last week, the Philippine benchmark, the Phisix, according to the table below from David Fuller of (HT: Prieur Du Plessis) shows dividend yields at 6.36%, PE at 9.05 and P/B at 1.4., compared to Indonesia’s 5.31%, 7.11 and 1.5, while Malaysia 6.15%, 9.67 and 1.3.

From current depressed levels, it is without doubt why Templeton's Mark Mobius believes that ``I think the markets will rejuvenate much faster than many people realize"

I share his view

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