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Schroders Emerging Markets Lens February 2024: your go-to guide to emerging markets

Amid a tough start to 2024 for EM, how are valuations evolving? And are China and India weights converging in EM equities?



Andrew Rymer, CFA
Senior Strategist, Strategic Research Unit

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

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

India and China index weights converging?


Past performance is not a guide to future performance and may not be repeated.

Source: LSEG Datastream, MSCI, IBES, Schroders Strategic Research Unit, as at 31 January 2024.

Summary of emerging market equities:

  • It was a tough start to 2024 for emerging market (EM) equities, which fell 5% in January and underperformed developed markets (+1%). Weakness in China (-11%) was a notable drag, while renewed US dollar strength also weighed on EM more broadly (slide 10).
  • India was the only large index market to generate a positive return in January. Strong performance and the inclusion of additional index companies in recent years has led India to become the second largest market in the MSCI EM; and it is closing the gap on China (slide 5).
  • EM equity valuations are marginally cheap versus the historical median on 12-month forward price-earnings (P/E) and price-book (P/B) measures, and outright cheap on dividend yield (slides 15, 20 and 22). 
  • EM is cheap versus developed markets (DM). On a 12m forward P/E basis, the discount is close to the largest seen over the last 20 years (slide 25).
  • On a standardised composite valuation measure most EM markets ex India are cheap versus their own history (slide 37).
  • 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 (slides 43 and 44). 

Most of EM is cheap but the degree varies

EM valuation heatmaps – current z-scores¹


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. Combined figure is an average of trailing P/E, 12-month forward P/E, P/B, and dividend yield. Source: Schroders, LSEG Datastream, MSCI, IBES, Schroders Strategic Research Unit. Data as at 31 January 2024.

Summary of emerging market debt:

Emerging market (EM) bonds had a mixed start to 2024. Strong US macroeconomic data raised doubts over the timing of Fed rate cuts, and US bond yields picked up, following sharp falls in Q4. Against this backdrop the US dollar strengthened. Continued weakness in China’s economy also weighed on broader sentiment towards EM.

Hard currency emerging market debt (EMD):

– Both the sovereign EM bond index yield (slide 8) and, to a lesser extent, spread are elevated versus their long-term history.

– The above-median hard EMD spread is driven by the high yield (HY) sovereign index. The IG spread remains below its historical median and close to its post-GFC low (slide 9).

– In corporate EMD, both the IG and HY corporate spreads are below their historical median (slide 15).

Local currency EMD:

– The average real yield premium of EM over DM has moved up from trough (slide 31). Both the average EM and DM real yields have lifted, with EM well into positive territory again; the average DM real yield is still negative (slide 32).

– The average local EM ex Turkey yield curve is no longer inverted (slide 30).

– There are undervalued currencies in all three EM regions (slide 36), but the degree of value varies significantly.

EMD headline valuations

Spread percentiles - Spreads of key EMD indices (basis points)


Source: Schroders, LSEG Datastream, J.P. Morgan. Data as at 31 January 2024. Percentiles shows where the current spread is relative to the historical range of spreads, within a range of 0 to 100. The greater the percentile the higher the spread compared to history. Hard EMD =stripped spread, Local EMD =Spread to 5 year UST, Corporate EMD = spread to worst.

Real exchange rate: deviation from average


Source: Schroders, LSEG Datastream. Data as at 31 January 2024. Real exchange rate is the nominal dollar exchange rate deflated by the consumer price index (CPI) of each EM country vs. US. Long-term average is since January 1995.


Andrew Rymer, CFA
Senior Strategist, Strategic Research Unit


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