Part of the reason for the measured response: EM valuations remain modest compared to developed markets. The price-to-earnings ratio for developed countries has risen nearly 40% over the past two years, while emerging markets are up a more moderate 20%. While EMs are not cheap per se, they offer relative value to developed markets, which helps explain why emerging markets have outperformed developed markets by roughly 4% so far in May.
Bottom line: The fact that EM stocks have withstood the recent geopolitical risks supports the notion that, although they can be volatile, EM equities could offer some relative value in a world in which many asset classes are fairly priced.
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.
International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/ developing markets, in concentrations of single countries or smaller capital markets.
Funds that concentrate investments in a single sector will be more susceptible to factors affecting that sector and more volatile than funds that invest in many different sectors.