One of the best selling points for investing in emerging markets is growth potential, but like any other sector, this growth must come at a reasonable price.
Emerging market stocks are cheap these days. The MSCI Emerging Markets Index has a 12-month forward price-to-earnings ratio of 10.8x, which is 15 percent below the P/E for the MSCI World Index. As you can see on the chart below, this valuation has rarely been more attractive – it is 15 percent below the long-term average.
On top of that, significant sales growth is expected in global emerging markets – 15 percent and 10 percent, respectively, for 2010 and 2011. The EMEA (Europe, Middle East and Africa) region is expected to lead the way – within EMEA, Turkey is seen as the star with nearly 30 percent sales growth this year and 17 percent in 2011.
Other emerging market standouts in expected sales growth: Taiwan (28 percent), Russia (15.8 percent) and India (15 percent). At 5.5 percent growth, the Philippines is expected to be the laggard.
Sales growth and margin expansion drive earnings growth – UBS predicts a 34 percent jump in earnings for emerging-market equities this year and another 12 percent in 2011.