Even with valuations close to the cheapest since 2009, emerging-market stocks are failing to lure investors amid concern that slowing economic growth will damage the prospects for earnings.
The CHART OF THE DAY shows that the price-earnings ratio for the MSCI Emerging Markets Index relative to that of the MSCI World Index of developed-market shares is near its lowest since March 2009, the start of the last global bull market.
Emerging equities have fallen out of favor, with the benchmark MSCI index tumbling 20 percent last year amid concern that economic growth was slowing from China to South Korea. In contrast, developed markets fell 7.6 percent in 2011 and the Standard & Poor’s 500 Index of U.S. shares was almost unchanged.
“It’s a bit too early to issue a buy signal given the uncertain backdrop about global risk sentiment,” Benoit Anne, the head of global emerging-market strategy at Societe Generale SA in London, said in a telephone interview. “A number of economies across emerging markets are facing severe slowdown risks. Given the macroeconomic backdrop, that doesn’t really entice you to go and buy the assets at this stage.”
Mutual funds in the largest emerging-market economies, the so-called BRICs of Brazil, Russia, India and China, posted the biggest outflows last year since at least 1996, according to EPFR Global.