Fundamenta­ls matter

Keith Parker, senior strategist, Barclays Capital

Dünya Executive - - REPORT -

We still see some value in emerging-market equities, driven by better growth trends amid falling local rates. However, the Fed is normalisin­g policy as growth data decelerate­s and China’s stimulus effects are fading. The variation in emerging-market equity yields is near post-crisis lows. Recent gross domestic product growth is also driving equity valuations, with a 43 percent correlatio­n, but local real rates, currency valuations, current accounts and exports should matter for emerging-market country equities as risks shift. Equity markets in the Czech Republic, Russia, Hungary and, to a lesser extent, Poland are very cheap, and yet they have lower external vulnerabil­ities and higher purchasing managers’ index figures. Turkey has considerab­le domestic risks, but equity valuations are very low. It is the cheapest equity market in our sample, as well adjusted for the macro-risk premium. The largest equity-sector exposure is banks at 40 percent, followed by staples at about 15 percent.

(May 22)

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