Using CAPE Ratios in Emerging Markets (The Emerging Markets Investor)

A bit in the technical weeds, but worth reading as they discuss the results of applying this methodology to several EMs.

  • The CAPE methodology is well suited for volatile and cyclical markets such as those we find in Emerging Markets. Countries in the EM asset class are prone to boom-to-bust economic cycles which are accompanied by large liquidity inflows and outflows that have significant impact on asset prices. These cycles often lead to periods of extreme valuations both on the expensive and cheap side. The Cyclically Adjusted Price Earnings multiple (CAPE) has proven effective in highlighting them.
  • We map index returns and CAPE ratios for the U.S., GEM (Global Emerging Markets) and the most important emerging market countries (China, India, Taiwan, Korea and Brazil) and also for several countries of interest (Turkey, Philippines and Mexico).

Source: Using CAPE Ratios in Emerging Markets (The Emerging Markets Investor)

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