IN FOCUS6-8 min read

Schroders Emerging Markets Lens October 2022: your go-to guide to emerging markets

Our monthly analysis highlights the charts and data that matter to emerging market investors

11/10/2022
Herotwo

Authors

Andrew Rymer, CFA
Senior Strategist, Strategic Research Unit

Our latest edition of the Schroders Emerging Markets Lens is now available. 

This consists of separate emerging market (EM) equity and debt chartbooks/presentations, packed full of data and insights to help you navigate the world of emerging markets. The aim here is to provide an unbiased top-down view of markets, with the main focus on EM valuations.

Below is a summary of key developments in the equity and debt markets and you can find the links to both presentations here:

Emerging Markets Lens: Equity

Emerging Markets Lens: Emerging Market Debt

Summary of emerging market equities:

  • Emerging market (EM) equities fell -11.4% in Q3, and underperformed developed markets (DM) by 5.3%.
  • China underperformed as real estate sector stress and a resurgence in Covid cases weighed on sentiment. Market sentiment in Eastern European EM was negatively impacted by escalation in Russia’s conflict in Ukraine. Conversely, Turkey was the best-performing index market, driven by non-fundamental factors, while Brazil and India also posted gains.
  • Year-to-date, commodity-producing Latin American and Middle Eastern markets have been the top performers. Eastern European markets are sharply lower, while EM Asia also lags the index.
  • EM equities as a whole are slightly undervalued on both a forward price-earnings and price-book basis when compared with the historical median. On a dividend yield basis, EM has reached a post-GFC high.
  • There remains considerable variability between sector valuations in EM. Growth sectors in general remain much more expensive than value sectors.
  • EM equites are cheaper than developed market (DM) equities, but the difference is not extremely large, especially on a sector neutral basis.
  • Valuations in Asia have become more attractive in some markets. LatAm remains the cheapest region.
  • A decade of US dollar appreciation has weighed on EM equity returns. Most EM currencies have depreciated in real terms, implying emerging value, although the extent varies significantly

Standardised EM country valuations: Combined

Average (P/E, P/B, dividend yield) (z-score1)

EM-Lens-Chart-1-for-TP-October-2022

1The z-score is a measure of how far valuations are from historical mean, calculated since January 2000. Excludes UAE, Qatar, Saudi Arabia and Kuwait due to limited data history.

Source: Schroders, Refinitiv Datastream, MSCI, IBES, Schroders Strategic Research Unit. Data as at 30 September 2022.

Summary of emerging market debt:

Hard currency emerging market debt (EMD):

  • The hard currency sovereign EMD index yield hit 9.6% at the end of September, its highest level since the GFC. This has been driven by a combination of higher credit spreads and higher treasury yields.
  • The spreads of the investment grade (IG) sovereign and IG corporate indices are close to their historical median.
  • The spread of the HY sovereign index is well above the historical median, and sits close to its GFC peak. The high yield (HY) corporate index spread is slightly above the historical median. 

Local currency EMD:

  • Local currency EM bond yields have increased markedly in 2022
  • The real yield pickup over developed market (DM) bonds has collapsed towards the bottom end of its post-GFC range.
  • There are undervalued currencies in all three EM regions. On average, Latin American currencies are the cheapest, whereas Asian currencies have the least appealing value

Hard currency sovereign EMD regional index yield

EM-Lens-Chart-2-for-TP-October-2022

Russia was removed from all JP Morgan EMD indices from 31 March 2022. 

Source: Schroders, JP Morgan. Data as at 7 October 2022.

Learn more about investing in Schroders Global Emerging Markets Fund

 

Important Information:

This document is issued by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473) (Schroders). It is intended solely for wholesale clients (as defined under the Corporations Act 2001 (Cth)) and is not suitable for distribution to retail clients. This document does not contain and should not be taken as containing any financial product advice or financial product recommendations. This document does not take into consideration any recipient’s objectives, financial situation or needs. Before making any decision relating to a Schroders fund, you should obtain and read a copy of the product disclosure statement available at www.schroders.com.au or other relevant disclosure document for that fund and consider the appropriateness of the fund to your objectives, financial situation and needs. You should also refer to the target market determination for the fund at www.schroders.com.au. All investments carry risk, and the repayment of capital and performance in any of the funds named in this document are not guaranteed by Schroders or any company in the Schroders Group. The material contained in this document is not intended to provide, and should not be relied on for accounting, legal or tax advice. Schroders does not give any warranty as to the accuracy, reliability or completeness of information which is contained in this document. To the maximum extent permitted by law, Schroders, every company in the Schroders plc group, and their respective directors, officers, employees, consultants and agents exclude all liability (however arising) for any direct or indirect loss or damage that may be suffered by the recipient or any other person in connection with this document. Opinions, estimates and projections contained in this document reflect the opinions of the authors as at the date of this document and are subject to change without notice. “Forward-looking” information, such as forecasts or projections, are not guarantees of any future performance and there is no assurance that any forecast or projection will be realised. Past performance is not a reliable indicator of future performance. All references to securities, sectors, regions and/or countries are made for illustrative purposes only and are not to be construed as recommendations to buy, sell or hold. Telephone calls and other electronic communications with Schroders representatives may be recorded.

Authors

Andrew Rymer, CFA
Senior Strategist, Strategic Research Unit

Topics

Equities
Fixed Income
Currencies
Emerging Markets
China
India
Asia ex Japan
Global
Latin America
Our sales team is available to discuss with you any investment opportunities.
Follow us

This website is owned and operated by Schroder Investment Management Australia Limited (ABN 22 000 443 274, AFSL 226473).  Your access to this website is subject to the Terms of Use found by clicking the ‘Important Information’ link below.  By using this website, you agree to be subject to these Terms of Use.