Bloomberg News

Emerging Stocks Cheapen Most Since Bubble Peak: Chart of the Day

October 28, 2012

Five years after global equities peaked, valuations in developing countries have tumbled the most even as their economies expanded fastest.

The CHART OF THE DAY shows the MSCI Emerging Market Index’s price-to-book ratio has dropped 47 percent since October 2007, compared with declines of 41 percent for Japan’s Nikkei 225 Stock Average, 38 percent for the Stoxx Europe 600 Index and 27 percent in the Standard & Poor’s 500 Index. The lower panel shows economic output has increased most in developing nations, according to the International Monetary Fund.

The decline in valuations has lured Jack Ablin, the chief investment officer of BMO Private Bank, who said emerging-market stocks were too expensive a month before the MSCI gauge peaked on Oct. 29, 2007. The Chicago-based investor now advises holding more of the shares than are represented in benchmark indexes.

“We are overweight,” Ablin, who started boosting emerging-equity holdings in January, wrote in an Oct. 26 e-mail to Bloomberg News. “We shifted out of commodities and into emerging stocks as a cheaper way to play emerging economies.”

The S&P GSCI Spot Index of commodity prices has climbed 6.6 percent since October 2007. Gross domestic product in dollar terms has increased 71 percent in emerging countries, 37 percent in Japan as the yen strengthened and 12 percent in the U.S. Europe’s output fell 2.5 percent.

The developing-market index trades at 1.6 times book value -- or assets minus liabilities -- down from 3 times at its peak, according to data compiled by Bloomberg. The gauge, which was valued at a 2 percent premium to the S&P 500 five years ago, now trades at a 27 percent discount, the data show.

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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