The valuation divergence between value and growth stocks in the Emerging Markets (EM) has reached an extreme, surpassing previous peaks seen during the technology bubble and the GFC. We believe that today’s record valuation dispersion highlights the significant opportunities available to investors, as well as the risk to existing growth-biased EM portfolios.
Much has been written about the unprecedented impact of the coronavirus pandemic — the depth of the economic contraction, the swiftness of the market correction as well as the unparalleled monetary and fiscal response of the policymakers. However, the extraordinariness of the situation does not stop there. Investor fears arising from the pandemic have exacerbated the divide between growth and value stocks within the emerging markets, creating an exceptional valuation gap. The valuation difference between growth and value stocks, on P/E terms, now far surpasses previous peaks seen during the technology bubble and GFC. (See Fig 1)
