What is the degree of Emerging Markets (EM) stocks’ undervaluation relative to United States (US) equities?

This paper compares long-term equity valuations for EM and US stocks using two different models, namely; market capitalisation (market cap) to gross domestic product (GDP); and by comparing current equity valuations to earnings growth. We analyse EM equities in aggregate and by country (focusing on the largest eight markets).

The overarching conclusion is that EM equities are deeply undervalued compared to US equities, a result which is robust across different methods, both trading at the most attractive relative valuation levels for over 15 years.

There is also significant dispersion between markets leading to excellent opportunities for active managers.