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Schroders Emerging Markets Lens November 2023: your go-to guide to emerging markets

After the risk aversion of recent months, what do EM valuations look like?



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

Divergent US and China performance dominates YTD picture

YTD EM and global equity market returns (USD)


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

Total return, US dollars. Source: LSEG Datastream, MSCI, Schroders Strategic Research Unit, as at 31 October 2023.

Summary of emerging market equities:

– Renewed conflict in the Middle East weighed on risk appetite in October. Emerging market (EM) equities fell 3.9%, declining for a third consecutive month, and lagged developed markets (-2.9%). Read more: Middle East conflict: what are the economic implications?

– EM lags developed markets (DM) by a sizeable margin YTD, largely explained by divergent US-China market performance (slide 9). Headline EM returns also mask wide country and regional return dispersion (slide 8)

– EM small caps are handsomely outperforming wider EM YTD, and are ahead of DM (slide 10). In styles, EM Value is ahead of the standard EM Index YTD; almost the opposite of DM factor performance where Growth leads (slide 11)

– EM equities are cheap on a range of measures. The 12-month forward price-earnings and price-book ratios are below the historical median and EM is particularly cheap on a dividend yield measure (slides 16, 20 and 21)

– 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

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, Refinitiv Datastream, MSCI, IBES, Schroders Strategic Research Unit. Data as at 31 October 2023. 

Summary of emerging market debt:

Emerging market (EM) bonds lost value in October amid conflict in the Middle East and ongoing upward moves in US Treasury bond yields. On a year-to-date basis, EM bonds remain in positive territory, with some variation in returns within the asset class (Slide 4)

EMD has generated positive returns year-to-date, led by EM local bonds

Total return year-to-date


Note: Local currency = US dollar for all apart from local EMD which is in the relevant local EM currency. Source: Schroders, LSEG Datastream,  JP Morgan, Schroders Strategic Research Unit. Data as at 31 October 2023.

Hard currency emerging market debt (EMD):

– The sovereign EM bond index yield and spread are elevated relative to their long-term history (slides 8-9). Read more: Soaring “margin of safety” in bonds boosts their appeal

– The above-median hard EMD spread is driven by the high yield (HY) sovereign index. The spread on the investment grade (IG) sovereign market is below its historical average, and remains close to 15-year lows (slide 9)

– In corporate EMD, the IG spread is below the historical median; HY is now in line with its median (slide 12)

Local currency EMD:

– The real yield premium of EM over DM is picking up from a low level. Both the average EM and DM real yields are rising, with EM well into positive territory again; the average DM real yield is still negative

– The average local EM yield curve has moved close to flat (slide 27)

– There are undervalued currencies in all three EM regions (slide 33), 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 October 2023. Spreads are adjusted for changes in the distribution of credit ratings within each index over time. Percentiles shows where the current spread is relatively 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, Refinitiv Datastream. Data as at 31 October 2023. 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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For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.