The time to buy emerging markets may be now

Emerging market stocks have had a stand still in upward price movement since 2006 if measured in USD and gone nowhere since 2010, while US and European stocks have gone through the roof.

Emerging markets performance in USD:

                                 Source: Franzlischa.blogspot.com

The MSCI emerging markets index is currently priced at a forward P/E, Shiller P/E and P/B of approximately 12.5x, 10x and 1.3x respectively, versus 17.0x, 25.5x and 2.8x for the S&P 500. According to the the valuation measures you can currently buy emerging markets stocks at half the price of US stocks. When one takes into consideration the high growth expectations for emerging markets vs. developed markets, emerging markets stocks seem to be priced attractively. To be frank, when you can buy high growth at half the price of low growth, you should choose high growth. 

And yes, China is not growing at a 15 % annual pace anymore, however 6 or 7 % is not too shabby either considering the current size of the Chinese economy.

Economic growth emerging markets vs. the "developed world":

                              Source: Market Realist

As we´re discussing a large part of the global stock market (some would define emerging markets stocks as its own asset class), it is helpful to look at the less volatile Price/ Book ratio in order to discuss investor sentiment. 

The Pirce/ Book ratio of emerging markets is currently at a lower level than during the trough of the financial crisis in 2008. The ratio has only been at current low levels 3 % of the time since 1989 and only lower during the emerging market crisis of 1997 - 98. Although growth is not as great as expected, the shape of emerging markets is not close to as bad as in 1997 - 98. It seems like emerging market stocks currently are significantly out of favor and unpopular, in other words, it is time for a value investor to get a move on and buy. 

MSCI Emerging markets Price/ Book development:

                                             Source: Financial Times

So, what should your horizon be as an emerging market investor? In my opinion long (5 - 10 years) as emerging markets are very volatile. It is impossible to tell if emerging markets will develop positively or negatively within the next year, however what we do know is that emerging market stocks currently are cheaply priced compared to historic pricing and other markets.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving any compensation for it.