Emerging market equities may not present the value that some investors think, says Caesar Maasry, head of emerging markets cross-asset strategy at Goldman Sachs Research.
Optically, the S&P 500’s price-earnings ratio, currently at about 20, is high relative to both historical and global comparisons – with emerging market valuations at about half that level.
“Does this mean that emerging market stocks are poised to outperform from here? Not necessarily,” Maasry says. He notes that US profits have grown by 7% per year over the past decade, while emerging market earnings have essentially been stagnant.
“Although emerging market equities appear to be cheap, they could be cheap for a reason,” he says.
Yet that’s not to say he’s bearish. “We expect 2024 to be the year in which emerging market profits finally lift off from 0% growth, and we expect modest outperformance,” Maasry says. In short, he believes that rising earnings growth, not low valuations, will prove the key to a comeback in emerging markets.