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Where the performers are in emerging markets

by , 26 August 2014

It's easy to chuck all emerging markets into the same pot, but the fact is, these markets perform very differently to one another.

There are some emerging markets that have limped along of late, whilst others have put in astonishing performances.

Let's take a closer look at how emerging markets have performed and what to look for if you want to invest…


Overall emerging markets have lagged developed markets


Over the past five years, emerging markets haven’t performed that well in comparison to developed markets. But if you whittle through the data, there are some emerging markets that have put in stellar performances.

For example, take a look at the MSCI Philippines Index, Cris Sholto Heaton in Money Week explains. Over the past five years it’s returned annually 24.49%! That’s pretty impressive. (You can read more about investing in the Philippines here.)

There are other markets in south east Asia that have also performed well. These include:

  • Thailand: 19.89%;
  • Malaysia: 16.34%; and
  • Indonesia: 15.53%.

But look to other emerging markets and you can see performances lagged in comparison. Brazil and Chile only returned 2.47% and 3.85% respectively on an annual basis.

And if you delve deeper into different sectors of the economy, you can see a different picture emerging. A lot of consumer stocks have performed very well, even though the overall index may not have done too good.

This shows that if you know where to look, there are great opportunities to make money from different emerging markets and sectors.


Where to find the next emerging market superstars


Just as with any other market, it can pay to look for value.

A recent study by Matthias Hanauer and Martin Linhart at Technische Universitat Munchen looked at the performance of value shares compared with growth shares in emerging markets.

They found that value stocks outperformed growth stocks by 0.93% a month from 1996 to 2012. That’s quite a big difference to your return.

Interestingly, they also found that if you invested in countries that had great growth for the past five years, in the hope the boom will continue, you saw poorer returns. The best returns came from markets that hadn’t performed so well in the previous five years.

Looking at emerging markets overall, there are profitable opportunities. You need to do thorough research and look at a number of different factors.

Currently the MSCI Emerging Market Index is trading on a price earnings (PE) ratio of 13. That’s in comparison to a PE of 18 for the MSCI World Index. This suggests there’s still a lot of performance left in emerging markets over the medium-term.

So there you have it, where the performers are in emerging markets.

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Where the performers are in emerging markets
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