Saturday, November 15, 2008

Emerging Markets Valuations

There are many ways to value a market. The usual suspects are dividend yield, price/ book value, p/ cash flow and PER. On average, for emerging markets as a group, dividend yield is 4.2, P/BV is 1.9, P/CF is 9.5 and FY1 P/E ratio is 9.5. In comparison, U.S. dividend yield is 3.14, P/BV is 1.76, P/CF is 6.93 and FY1 P/E ratio is 11.8. On balance we can see that P/BV for US stocks are still lower than emerging markets average. The other danger is that price / cash flow is more attractive in US stocks. In valuation terms, I would see P/CF as the MOST important out of the 4 indicators because its real cash. Dividend yield while good, can be dramatically lower in future periods if earnings get pummeled. Price / book value is a comfort indicator and would only come into play in a liquidation potential or buyout potential, for on going market valuation, its not that important.

Just from the indicators alone, those critics who say that the emerging markets have fallen as hard as the US markets is wrong. Emerging markets may have some way to go to match US stocks' levels. That is not to say that emerging markets will head towards US valuations. But if the markets are at a premium, it may not recover as fast. For both emerging markets and U.S. markets, this level of fundamental valuation has not been seen in decades. You can also check my last post about stock markets valuation two months ago, just before global sell-off had been triggered. Green indicates attractive valuations, red denotes a sell.

Div.Y. P/BV P/CF P/E

Argentina 1.8 / 1.2 / 4.3 / 5.5
Brazil 2.2 / 1.6 / 4.6 / 6.7
Chile 3.5 / 1.9 / 6.5 / 12.2
China 3.3 / 1.4 / 5.8 / 8.2 ( looking OK on all counts, may be ready to rally)
Colombia 2.3 / 1.1 / 8.6 / 12.8
Czech Rep 6.2 / 2.1 / 6.7 / 8.8
Egypt 5.5 / 1.7 / 5.1 / 6.8
India 1.9 / 2.1 / 8.0 / 10.0 (may still have more room to fall)
Indonesia 5.3 / 1.6 / 5.4 / 7.2 ( its cheap, if the rupiah can get out of its rut, its a very good bet)
Israel 4.0 / 1.6 / 7.2 / 10.1
Jordan 1.7 / 1.8 / 6.1 / 15.2
Malaysia 5.6 / 1.3 / 5.9 / 9.6 (very decent on all counts, any further falls should attract sophisticated buyers)
Mexico 2.1 / 2.0 / 4.9 / 9.5
Morocco 2.8 / 3.8 / 20.8 / 20.5 (should have a lot of room to fall)
Nigeria 4.3 / 3.1 / 4.1 / 9.3
Pakistan 6.4 / 1.7 / 5.5 / 7.3
Peru 6.7 / 2.1 / 7.1 / 7.7
Philippines 4.3 / 1.3 / 5.1 / 9.9
Poland 5.4 / 1.3 / 5.5 / 7.5
Russia 2.7 / 5.8 / 81.7 / 3.5 (this market can totally collapse further)
Slovenia 2.2 / 1.5 / 11.5 / 12.8
South Africa 4.7 / 1.8 / 6.4 / 8.1
Taiwan 7.7 / 1.1 / 3.9 / 9.6 (very cheap, probably the best Asian market to go long)
Thailand 7.7 / 1.0 / 3.8 / 5.5 (even better than Malaysia)
Turkey 5.1 / 1.1 / 3.8 / 5.6 (had fallen enough, now to get the currency healthy again)

p/s photos: Tangmo Pattarathida


Pat said...

Thanks for article, SD..but just want to know your opinion on this article which blew me away!

How credible is this?

Many thanks again on your articles

Salvatore_Dali said...


read the article (twice)... if I was being nice,.. its a load of crap

if the writer wants to write fiction or fantasy, then it would be a B+

you cannot even get leaders to agree on imf plans or global warming conditions... or free trade rules... this would be just 1000000x harder, thats all

but u should buy some gold futures for different reasons... the upcoming reflationary cycle due to the immense amount of liquidity being pumped in now

lsb said...

The current international trading system is not about to go away quickly, it will take time to change, slow rather than fast. The U S will drag it feet to retain USD as fiat money for as long as it can do so.

The power of a currency as Fiat money is tremendous.

Russia is in the fore front to break the USD as fiat money.

Tony said...

How about Singapore and HK, the 2 markets which I still have positions?

lsb said...

We have liquidity trap, ample liquidity but no lending nor desire to borrow.

same as Japan in the 1980s.

Salvatore_Dali said...


as the data i got was on emerging markets, hk n singapore were not included... but u can try to find out fm yr broker ,,, the guidelines are there...

P/CF should be 6 or below, dividend yield should be at least 3-4%

Pat said...

Thanks for your comments, but surely the issue of the US debt needs to be dealt with, one way or the other. A debt of USD11 trillion (may be more in the coming years) is too much for even a big boy like the US, in terms of interest let alone capital repayment. Obviously this issue is not without severe consequences to the rest of the world.

I'm afraid the US is almost running out of ammo. Maybe revalue the USD or churn out a new currency (Amero perhaps??)

Would appreciate your take on this one, SD.

Salvatore_Dali said...


yes the US have big problems, not just this de-leveraging. they have social security, the trade deficit, the medicare issue... an aging population that will present a lot of claims on the working class over the next 20 years... the silly solution of new currency is to ensure everyone has a lower standard of living... no nations with high savings and trade surplus will agree... it would be much easier to conquer Saudi Arabia, Iran and Iraq to steal their oil to pay down debt... ok thats the end of the new currency option, it so silly I wont want to entertain more questions on it.

There are solutions, a gradual but stiffening depeciation of USD. I am talking 10% a year for at least 5 years... we will see maybe usd at 2.2 to the ringgit ... that would put the US at a much more competitive level, imports will cost a lot thus improving their deficit with good exports... they would stop losing jobs overseas. Yes, holders of Treasuries will see enormous losses, I dont think there is any alternative. China and Japan cannot press the button to sell all Treasuries... but I think they would just shrug their shoulders to take the losses.

Pat said...

Thanks SD

KoSong Cafe said...

Laments of an amateur:

I tried to use info from local papers (cannot effort Edge lah) and I get PER, DY on certain days and no. of shares and NTA on a particular day. To combine, one has to recalculate if prices different.

Then, using M2U, I can get more info like highest and lowest for past year, last quarter earnings reported and so on.

But, the info in both leaves much to be desired, with wrong information like loss figures shown as profit (unforgivable) and EPS wrong by a decimal place because of 10 sen par instead of Rm1, and so on.

I often wonder about the accuracy when analysts use the averages of the whole market. The assumption is correct information. It appears to me, this is available to experts in the field or those who can afford to pay for them.

Jasonred79 said...

In hindsight, looks like Thailand was NOT such a good buy at this point in time after all?