Bengaluru: Despite a strong start to this decade in 2010, emerging market stocks underperformed developed market peers and were weighed down by events such as the Chinese market sell-off, debt crises in Turkey and Argentina and the Sino-US trade war.
MSCI’s index of emerging market stocks has risen just 15 per cent since the start of 2010, while the MSCI World index delivered a massive 104 per cent return in that period. Thailand, Philippines and Taiwan led emerging markets, with gains of more than 50 per cent each over the past decade, while Greece, Turkey and Czech Republic bottomed the list with negative returns.
The period from 2010 to this December also saw turbulent foreign portfolio flows into emerging markets as overseas investors baulked during periodic swings in risk appetite, including a period of rising US interest rates as major central banks began to unwind their crisis-era stimulus. Despite the volatility, share prices broadly kept pace with earnings growth.
Winners and losers
The MSCI EM index’s forward 12-month price-to-earnings (P/E) ratio was at 11.8 at the end of November, compared with its 10-year average of 10.9. Its lowest was 8.5 in October 2011, and the high was 13.09 in January 2018.
China and Poland saw the biggest drop in their P/E ratios in the past decade, making them cheaper. Thailand saw the biggest rise in the valuation ratio.
Russia and Czech Republic lead the dividend yields league table, while India had the lowest yield. Russia’s dividend yield rose to 6.8 per cent at the end of November, compared with 1.6 per cent at the start of 2010. Chile’s dividend yield also rose to 3.6 per cent from 1.3 per cent in that period.
EM firms’ profits slowed after they posted solid growth of 40 per cent in 2010, according to a Reuters analysis of 4,402 firms, due to a combination of factors such as a fall in commodity prices, slowing demand for tech products and the US-China trade dispute.