06 Mar Things You Should Know: Emerging Market Equities
In our Delegate Advisors Asset Class Indicators for the first quarter of 2019, we raised our outlook for emerging market equities from underweight to neutral-to-overweight, reflecting what we believe to be an attractive long-term opportunity. The shift in outlook is based primarily on the current valuation of the asset class. As shown in the below chart, the cyclically-adjusted price-to-earnings ratio (“CAPE”) for emerging market equities was 12.1 as of 12/31/2018, well below its 10-year average of 14.7.
Additionally, while emerging market equities naturally have lower valuations relative to developed markets due primarily to the inherent risks of the asset class, the spread between the valuation of emerging markets and developed markets is currently wider than average, implying that, relative to global developed markets, emerging markets represent a better value.
Given this backdrop, we expect emerging market equities to outperform developed markets over the long term as their valuation converges to the long-term average and as the spread between valuations for developed and emerging markets tightens.
One caveat, however. While emerging market equities may currently appear undervalued, the asset class is historically very volatile, meaning that large, sudden moves (both positive and negative) are common and expected. Thus, investors who are unwilling to “ride out” this volatility should consider an alternative.
Disclaimer: This material is for information purposes only and for the use of the recipient. Under no circumstances is it to be considered an offer to sell, or a solicitation to buy any investment referred to in this document. Although we believe our sources to be reliable and accurate, we assume no responsibility for the accuracy of such third‐party data and the impact, financial or otherwise, it may have upon any client’s conclusions. Delegate Advisors, LLC, has not audited or otherwise verified this information and accepts no liability for loss arising from the use of this material. The information contained in this document is current as of the date indicated. Delegate Advisors, LLC, undertakes no obligation to update such information as of a more recent date. Any opinions expressed are our current opinions only. Nothing herein should be construed as investment, legal, tax or ERISA advice. You should consult with your independent lawyer, accountant or other advisors as to investment, legal, tax, ERISA and related matters to which it may be subject under the laws of the country of residence or domicile concerning the acquisition, holding or disposition of any investment in the account. Past performance is not indicative of future results. All investments involve risk including the loss of principal. Any investments discussed within this material may be subject to various fees and expenses, which will have a negative impact on performance.