Thanks to the wild market swings of the past month, emerging-market stocks are trading at historic lows. That means investors have a rare opportunity to load up on stocks at valuations they wouldn't see under normal circumstances.
If we were talking about a sell-off that was based on fundamentals, that might be a warning sign. But what we've seen instead is the irrational dumping of companies that actually are poised to see their profits grow.
Take a look.
The stock-market sell-off that's pushed the Dow Jones Industrial Average down 9% in the past month has rubbed off on emerging-market stocks. The MSCI Emerging Markets Index, which tracks market performance in developing economies, has slipped 12% this month – its worst slide in three years. After falling as low as 990, it's now trading around 1,010, 28% below its 20-year average.
This puts emerging-market stocks near record-low valuations, and with their high-growth outlook it's time for investors to scoop them up at bargain prices.
"We've been pecking away at things as they decline," billionaire investor Wilbur Ross, chief executive officer of WL Ross & Co., told Bloomberg Television. There's "plenty that's attractive in the emerging markets. Buying stocks at today's prices over a couple of years' time period will prove to be a uniquely rewarding experience."
Current emerging-market valuations are at their lowest level since March 2009, but companies are worth much more than share prices reflect. The latest prices imply these companies will lose about 20% of earnings over the next year, according to Morgan Stanley (NYSE: MS), when in reality they're poised for growth.