If there is anything positive to say about emerging markets
stocks, and finding such niceties is difficult these days, it is
that these equities and
are inexpensive on a valuation basis.
The iShares MSCI Emerging Markets Index Fund (NYSE:
) has a P/E ratio of about 18.1 and even steeper discounts can be
found with ETFs tracking EEM's constituent countries.
For example, the iShares FTSE China 25 Index Fund (NYSE:
) has a P/E of 13.2. Russian stocks,
as is usually the case
, are also trading at significant discounts to the broader
emerging markets universe.
One market that despite its recent declines is not trading at
a discount is Mexico and that could portend more downside ahead
for stocks in Latin America's second-largest economy. In the past
three months, the iShares MSCI Mexico Capped Investable Market
Index Fund (NYSE:
) is the second-best performer among the five major
country-specific ETFs tracking Latin American nations.
That is saying nothing, however, because EWW is down 16.4
percent over that time, a performance that is by no means good
and is merely less bad than the dismal runs of the comparable
Brazil, Chile and Peru ETFs. Despite that tumble, EWW has a P/E
of almost 22.3 and a price-to-book ratio of nearly four,
according to iShares data
A large part of the reason why EWW trades at valuations that
are rich compared to other emerging markets ETFs is sector
allocation. Consumer staples and telecom, both defensive sectors,
combine for over 46 percent of EWW's weight. Valuations on
U.S. staples are also rich
, but the corresponding ETFs do not feature a three-year standard
deviation of 21.2 percent like EWW does.
Over the past three months, EWW has been 230 basis points more
volatile than the iShares MSCI Chile Investable Market Index Fund
) and nearly 700 basis points more volatile than the Global X
FTSE Colombia 20 ETF (NYSE:
). GXG is the one Latin America ETF that has outpaced EWW over
The potential problem looming for Mexican stocks and EWW is
the recent declines have not done much in the way of making
Mexico look cheap relative to other Latin American markets. Worse
yet, earnings do not appear to be justifying the prices investors
would pay today for EWW and its constituents.
"We would highlight that we do not feel that current
valuations adequately reflect how weak Mexican earnings have been
so far in 2013 (on a market cap-weighted basis, Mexican earnings
fell 10% short of expectations in 1Q-2013), nor adequately
reflect the likelihood of further downward revisions in earnings
stemming from a weaker-than-expected economic outlook in Mexico
(with expectations for GDP growth having been cut from ~4% to
according to part of UBS note posted in
For technical traders out there, EWW offers plenty of warnings
on that front as well. The ETF labors 15.6 percent below its
200-day moving average and just 3.3 percent above its 52-week
low. EWW's recent string of closes below $60 are the fund's first
in a year.
For more on ETFs, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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