Posted August 24, 2014 2:19 pm by Comments

Citywire has quoted Lisa Shallett, the head of investment and portfolio strategies at Morgan Stanley Wealth Management, as saying they are underweight emerging equities, warning that the asset class is still beset by risk with valuations “rich,” whatever the disparity with prices in the developed world:

“Emerging markets have surprised to the upside this year. We believe performance may be ahead of the fundamentals. We are concerned about rich valuations, high debt, vulnerability to rising US rates, misallocation of capital, dependence on Middle East oil and uninspiring macro fundamentals, which is why [we are] tactically underweight this asset class…”

And:

“We also reject the argument that emerging market equities are cheap on a price-to-earnings basis. The median company is up in price, while earnings have yet to rebound and forward earnings revisions are negative. This suggests to us that emerging market valuations are actually rich.”

The Citywire article goes on to note that the lack of earnings growth was highlighted earlier this month as some 70% of emerging markets companies issued negative earnings per share guidance for the third quarter, with just 30% issuing positive guidance. In addition, updates from US-listed companies has been mixed with Intel warning that emerging market sales “remain challenging” while Nike reported an uptick in “almost every territory and increased revenue in nearly every key category.”

To read the whole article, Is the emerging market discount justified?, go to the website of Citywire.

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