In focus

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


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.png

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.png

Russia was removed from all JP Morgan EMD indices from 31 March 2022. Source: Schroders, JP Morgan. Data as at 7 October 2022.