As investors increasingly look to the emerging markets, investment choices have grown significantly. Rather than the standard broad-based, all-encompassing emerging market equity strategies of yesterday, we’re seeing investors looking to explore and understand more finely tuned exposures to this asset class.
Presenting the WisdomTree Emerging Markets Equity Toolkit
WisdomTree offers a broad suite of emerging markets equity Indexes, each designed with its own focus and objective. To help investors evaluate the various strategies, we start by looking at valuations, specifically price-to-earnings (P/E) ratio.
WisdomTree’s Roadmap to Emerging Market Equity Valuations (as of 5/1/15)
• Least Expensive Option: The WisdomTree Emerging Markets Equity Income Index, with its P/E ratio of 11.8x, was the lowest. Why is that? This Index hunts for valuation opportunities across dividend-paying emerging market stocks, weighting them by cash dividends. It just so happens that, since June of 2012, some of the highest-yielding and largest cash-dividend-paying companies in the emerging markets tended to be Russian energy firms and Chinese financials. Thus far in 2015, these segments of the market have been rallying, contributing to the Index having returned 11.45% and beating the returns of the MSCI Emerging Markets Index over the period.
• India’s Equities at a Lower Price than the MSCI Emerging Markets Index: the MSCI India Index had a P/E ratio of nearly 21.0x. Both the S&P CNX Nifty and S&P BSE SENSEX indexes were also in the vicinity of 20.0x earnings—a significant premium to broader emerging market equities. However, the WisdomTree India Earnings Index was able to deliver a broader exposure to India’s equities while attaining a P/E ratio more than 30% below those predominantly large-cap options. As we wait for the potential earnings growth to materialize from Indian prime minister Narendra Modi’s reform efforts, we believe that being sensitive to valuation is of paramount concern in India’s equities today.
• Korea’s Equities Are Up Over 12.7% Year-to-Date: As people think about different countries within emerging markets, we urge them not to forget about South Korea. The WisdomTree Korea Hedged Equity Index is up more than 12.7%. We really like the potential for this market, discussed further here in a broader, more in-depth piece.