(Rio de Janeiro)
Emerging markets make up a fraction of US investors' portfolios even though they account for a quarter of global stocks weighted by market value, and they are one of the most important tools to beat the markets moving forward. The biggest factor driving the divergence in emerging markets and US markets has definitely been earnings, which has pushed the gap to its widest levels in the last two decades. However, earnings aren’t the only component of stock valuation. Dividend growth is expected to double up on US markets with 3% as compared to 1.4-1.5% in the U.S. Meanwhile, emerging markets are trading at a ridiculous discount as their P/E is about 12x where the S&P 500 is an average of 20. The common ratio of P/E to expected earnings growth and dividend yield favors emerging markets, which is already assuming high earning growth for US stocks. Finally the last time the gap between emerging markets and U.S. stocks was this bad the EM went on to beat the S&P by 14% over the next 7 years.
FINSUM: This is the perfect opportunity to move abroad because presently the discount is just unjustified for emerging markets.