Emerging Markets: Where to Find the Best Performance?

The Resilience of Emerging Markets

In recent years, emerging markets have faced several challenges, yet they have shown a strong resilience in the face of adversities, catching the attention of investors.
These countries are seen as opportunities, especially compared to mature markets that some consider already quite extended.

What’s Happening in the Emerging Market?

In 2023, the emerging stock market has significantly underperformed compared to developed markets.
While global stock indices, particularly those in North America, continue to hit new highs, emerging market indices have remained flat.
Despite being in positive territory, emerging markets have underperformed by about a third compared to the average global market performance.
This has piqued the interest of analysts.

Identifying Discounted Emerging Markets

Looking at Asia, excluding China, there is still underperformance, although less significant.
Taiwan, India, and South Korea have shown strong performance, while China, which also represents the largest market capitalization in emerging market indices, has been the underperformer.
In Latin America, Mexico and Brazil have recorded returns exceeding +30%.
Even in Europe, where there is a small component of countries often unfairly considered emerging, Greece and Hungary have seen returns surpassing +40%.

China: An Undervalued Market?

If you believe in a potential Chinese economic recovery, China remains one of the most undervalued markets currently.
The fact that Chinese stocks have lagged behind the rest of the emerging markets and considering China’s significant market capitalization makes the market multiples quite discounted.
The spread between the P/E ratios of North America and emerging markets is higher than the historical average, leading many to question the reasons behind it.

While China has indeed held back the emerging market performance, it’s also important to note that the North American stock market has seen a surge in performance, potentially indicating overvaluation.
Overall, the spread between emerging and developed markets could narrow through a price contraction in the already extended assets of established markets or a recovery in the Chinese stock market, making exposure to this geographical category an interesting choice.