Saturday, January 16, 2010

Valuations and Corrections

Notes from Mark Mobius

Emerging Markets Valuations

One of the best single indicators of value is the price-to-book value (P/BV). If you look at average valuations over the last ten years, you will see that the low point was about one time P/BV and at the high was about three times P/BV. We are now about two times P/BV.

So in terms of the historical valuations, we appear to be in the middle of the range - not excessive, but not as cheap as we were before.

Unless there is certain monetary tightening in these emerging market economies, I think current valuation levels are sustainable.

Clarification on Market Correction

In a Bull market as we are now experiencing, there will be corrections as the market continues to march upwards, and such corrections could be anywhere from 15 to 20%, or even 30%.

I want to emphasize that I am not predicting any specific correction but I am just saying that we have to prepare for such corrections and that we not be alarmed by them given current market conditions.

We expect these kinds of corrections in emerging markets and rather than focusing on when a correction might happen, we focus on picking up investments that in our view have dropped to compelling valuations as a result.

Sharing Investors’ Queries January 15, 2010

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