Emerging Markets: Hard to Overlook

Emerging Market Earnings Inflection Point?

Heartland Advisors International Value Investing Emerging Market Earnings

*Estimated for calendar year
Source: Bloomberg L.P. and Russell®, as of 4/13/2017
Emerging Market Earnings is represented by Earnings per Share in the Russell Global® Emerging Markets Index. Economic predictions are based on estimates and are subject to change.
Past performance does not guarantee future results.

When it comes to Emerging Markets (EM), many investors have taken a “trust but verify” approach. False starts in the past have led to questions about whether the group will progress beyond a hope trade anytime soon. Even devoted skeptics, however, may have a hard time dismissing the chart above. It shows earnings for EM companies are expected to jump an average of nearly 15% in 2017.

The increase is impressive on its own—but even more so considering the number of factors behind it. In the past, a significant move in earnings estimates would have required projections of a sharp hike in the price of oil or other commodities. Now, we believe, the outlook reflects stabilizing local currencies, cooling inflation and improving economies in countries such as China.

Yet for all the progress developing economies have made, companies in the group still trade at a material discount to their U.S. counterparts, as measured by normalized valuation ratios. As we’ve noted previously, valuing a business based on normalized earnings allows investors to make apples-to-apples comparisons across economic cycles and strip out some of the regional biases that have led to many investors overlooking promising geographical areas.

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Heartland Advisors Value Investing Portfolio Manager Michael Jolin

Michael Jolin

Jolin, CFA, is Vice President and Portfolio Manager for the Heartland International Value Fund. He has 14 years of industry experience, 8 at Heartland.

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