Emerging markets (EM) are looking increasingly cheap relative to the US. Over the past 12 years, EM stocks have gained only 28 per cent, notes Compound Capital Advisors’ Charlie Bilello, while US stocks have more than quadrupled. Consequently, the ratio of EM stocks to US stocks is now at its lowest level since 2001.
EM stocks trounced their US counterparts in the 2000s, soaring 392 per cent even as US equities flatlined. However, all that outperformance has since been wiped out. During the dotcom bubble, EM stocks traded at almost an 80 per cent discount to the US, notes Callum Thomas of Topdown Charts. At the peak of the EM frenzy, they traded at a 30 per cent premium.
Today, they trade at about a 50-60 per cent discount to the US. That’s a “major” discount, says Thomas. Maybe all the bad things about EM and all the good things about the US are already priced in, “and perhaps then some”.