The rally in emerging markets equities is more than 23 months old, with stocks up more than 75% since a trough in early 2016. Is the rebound getting long in the tooth? It could just be getting started. An expanding global economy, strengthening currencies and robust demand for technology-related components all bode well for emerging markets. A synchronized global recovery is an ideal environment for emerging markets, similar to the period that lasted from 2003 to 2007.
Amid the ongoing rebound, overall valuations are still attractive from a historical basis and compared to developed markets. For instance, China, Taiwan and Brazil all trade around 13 times projected earnings over the next year, compared with 17 times estimated earnings for the MSCI World Index. Company cash flows are also increasing, which could lead to higher earnings revisions. Corporate profits are forecast to climb 13% in 2018, and historically rising profits have been good for share prices.
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