Research Affiliates argues emerging markets may offer a rare setup where cheap valuations, depressed currencies, and improving momentum align simultaneously. The paper suggests investors may still be underestimating the opportunity, noting EM equities traded at 11.2x Shiller P/E even after a 19% rebound in 2016.
The Emerging Markets Hat Trick: Time to Throw Your Hat In?
Research Affiliates
Rob Arnott, Brandon Kunz
Research
8 Pages
Key Takeaways
Historic Valuation Gap: MSCI Emerging Markets reached a 9.6x Shiller P/E in January 2016, the first sub 10.0x reading since the index’s inception.
Currency Mispricing Opportunity: Emerging market currencies fell from 25% above fair value in 2011 to 30% below fair value by January 2016, remaining roughly 19% undervalued afterward.
Long Term Return Outlook: Research Affiliates projected 7.5% annual real returns for capitalization weighted EM equities over the next decade, rising as high as 9.0% earlier in 2016.
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