EM Stocks: Beyond the Jitters

Written by: Global Thought Leadership | January 25, 2019

Chart Courtesy of Martin Currie.  Source: Bloomberg, as of Dec 31, 2018. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

The Bottom Line

  • Investors in Emerging Markets (EM) stocks could be forgiven for being gun-shy after a rough 2018, with EM index returns ending the year down -16.6%.1
  • In that context, the 7.2% updraft between Dec. 26 and Jan. 21 might feel less than entirely satisfying.
  • But the flip side of that modest gain is that there are still good reasons to revisit the sector -- starting with valuations.
  • Most notably, the price-to-book ratio – a valuation measure that’s less susceptible to earnings manipulation than the standard P/E ratio, and frequently used to evaluate international stocks – stood at 1.46, vs. 2.12 for the world’s developed markets, as shown above.2
  • That’s a big difference, given that both sectors are currently delivering a very similar return on equity, at 13.8% and 13.1%, respectively.
  • That backdrop suggests there’s opportunity for long-term EM investors like Legg Mason’s Martin Currie to purchase stocks at attractive prices in companies in these markets – on a selective basis, in keeping with their active approach.
  • For more insight into Emerging Markets now, read Martin Currie’s 2019 outlook – “Current Volatility, Long-Term Opportunity.”

1 Source: Bloomberg. MSCI Emerging Markets Index, Jan 1 – Dec 31 2018.

2 Note that Martin Currie’s figures are as of 12/31/18; the figures in their 2019 Outlook are as of 10/31/18.


Emerging markets (EM) are nations with social or business activity in the process of rapid growth and industrialization. These nations are sometimes also referred to as developing or less developed countries.

The price-to-book (P/B) ratio is a stock's price divided by the stock’s per share book value.

The price-to-earnings (P/E) ratio is a stock's (or index’s) price divided by its earnings per share (or index earnings). 

Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as: Return on Equity = Net Income/Shareholder's Equity.

The MSCI Emerging Markets (EM) Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

The MSCI World Index is an unmanaged index of common stocks of companies representative of the market structure of 22 developed market countries in North America, Europe, and the Asia/Pacific Region. 


IMPORTANT INFORMATION: All investments involve risk, including loss of principal. Past performance is no guarantee of future results. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice.  Statements made in this material are not intended as buy or sell recommendations of any securities. Forward-looking statements are subject to uncertainties that could cause actual developments and results to differ materially from the expectations expressed. This information has been prepared from sources believed reliable but the accuracy and completeness of the information cannot be guaranteed. Information and opinions expressed by either Legg Mason or its affiliates are current as at the date indicated, are subject to change without notice, and do not  take into account the particular investment objectives, financial situation or needs of individual investors.

Forecasts are inherently limited and should not be relied upon as indicators of actual or future performance.

Active management does not ensure gains or protect against market declines.