This time it's different
It's not just Indian markets that are trading at unheard of valuations when the Sensex (^BSESN : 19594.75 0) touched 19,000 on September 13, 2010, the Sensex was valued at just over 18 times estimated 2010-11 earnings as compared to over 21 in October 2007, the first time the Sensex touched 19,000. According to a Bloomberg report, the MSCI Emerging Markets Index is valued at 14.1 times reported profits and 1.9 times net assets, compared with ratios of 14.9 and 1.7 for the MSCI World Index. According to the same report, emerging markets' share of world equity capitalisation climbed to a record 25 per cent in August, up from 22 per cent a year ago a sign of the flagging recovery in the US and Japan in comparison with the robust growth in emerging markets like India.
A Nomurra report, see table, puts India's price-earnings ratios at among the highest in emerging-markets at 16.9 times projected earnings for 2010, the only market that is valued more expensively is China, which is 18.1. You could call it expensive, of course, or you could call it the growth potential.
Interestingly, Bloomberg adds the only other time when emerging-market stocks were valued at more than developed markets was in the 10-month period ended May 2008, just before the credit crisis. The MSCI emerging-market index has traded at an average discount of 30 per cent to the MSCI World Index in the last 10 years. |
