Thursday, June 19, 2014

Emerging Market Opportunities

In our continuous search to improve upon our emerging markets success in the beginning of 2014, we would like you to consider another demonstration of country-wide performance, the 2014 World Cup.  The World Cup occurs every four years, and showcases the most talented soccer players from around the world.  For the preliminary round, countries are split into eight groups, each consisting of four teams.  We have taken these same groups, and used them to display financial, rather than physical, performance metrics.  Each group has been sorted by year-to-date return.

Group A-D
To demonstrate present and projected valuation, the current and forward price-to-earnings ratios are also listed.  As a reminder, price-to-earnings ratio is defined as current price divided by trailing 12-month earnings per share.  Greece, for example, would be the only country in this list with negative earnings, given their negative P/E ratio (-3.3). Italy’s P/E ratio is so alarmingly high (287.1) because the country has just recently generated positive, albeit still very low, earnings.
Group E-H
Forward P/E is the ratio of a country’s current price over its projected earnings for the next four quarters.  The best way to use this information is to compare the forward P/E ratio with the current P/E ratio, keeping in mind that lower is better.  Since the bulk* of these countries have forward P/E ratios that are lower than their current P/E ratio, a vast majority would be expected to see increased country-wide earnings over the next year.

As we have recently mentioned, we currently see a much greater opportunity in emerging markets as opposed to developed markets.  Developed markets, for the most part, performed very well in 2013 while emerging markets lagged far behind.  Based on historical evidence, we feel that this performance gap will continue to shrink throughout the rest of the year.  Each emerging market carries with it a different set of economic circumstances, however, which is why we are continuously focusing on selecting emerging market countries for our Alternative (ALT) strategy that we feel are most poised for future off-field success.

*Excluding Belgium, Argentina, Russia, and the special circumstance of Greece.

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