Philip Petursson, chief investment strategist of IG Wealth Management, joins BNN Bloomberg and discusses about reasons to be optimistic about emerging markets.
The broad gap today is due primarily to two things: analysts have raised the average earnings estimate for the MSCI Emerging Markets Index by 5.2 per cent in the past two months, faster than a 1.9 per cent increase for the S&P 500 Index; while at the same time, price performance for EM shares has trailed the U.S. as investor sentiment remains cautious.
Just over three years ago, investors accepted only a 28 per cent discount in the price-to-earnings ratio for EM stocks. That gap has widened to 45 per cent as the impact of a stronger U.S. dollar, stubborn inflation and elevated interest rates takes a toll on emerging-market growth and corporate performance.
Money managers also point to the need for a sustainably weaker dollar and more EM companies comparable to the U.S.’s so-called Magnificent Seven that can excite investors.