EM equities stand out from the crowd

Recent market movements have left the valuations of many assets looking stretched. But emerging market (EM) equities are an exception – their valuations still look low relative to those of EM bonds and developed market equities. Admittedly, the valuations of most EM equities are a little above their average level over the past five years. But this is not true across the board, and valuations don’t look especially high from a longer-term perspective. What’s more, the huge rally in the US stock market since 2009 means that the valuation of EM equities still looks low in relative terms, despite prices having increased by around 25% over the past year. Their valuation also compare favourably with those of EM sovereign and corporate bonds, particularly in the case of speculative-grade bonds.