Emerging Markets Weekly

A quick look at valuation in emerging markets reveals that the BRIC countries are no longer trading at the discounts to long term averages that they were trading at last year at the height of the financial crisis. The chart below shows the trailing P/E ratio for the four BRIC markets revealing that Russia appears to offer the best value and that neither India nor China are anywhere near the high points reached prior to the onset of the global credit crisis.

One way to look at the rising P/E ratios is that the market is discounting a strong rebound in economic growth in 2010. In India for example, analysts are expecting a 24% rise in earnings for the fiscal year ending March 2010. If these earnings materialize as expected over the course of the year, there is every reason to believe the market could move higher because valuations would otherwise recede to their long-term average.

Given the similarities between valuations in emerging markets and developed market on a trailing P/E basis, it would seem obvious that the higher growth prospects in the EM make these markets a better bet.