We don’t pay attention to valuation, but fundamental analysts who do apparently still have no problem making a case for emerging markets. The graphic below is from Bespoke Investments. They’ve taken the concept of the PEG ratio (price-to-earnings ratio divided by earnings growth rate) and applied it to broad economies. In this case, they’ve taken the broad market PE ratio and divided it by the country’s GDP growth rate. The countries are then ranked from cheapest to most expensive.
At the cheap end are the big emerging markets of India, China, and Brazil. At the most expensive end are the overly indebted European countries like the U.K. and Spain. Perhaps not surprisingly, that’s how relative strength has them sorted out at the moment also.
