One of the fascinating things I have learned in this market: Avoid PE (Price to Earnings) talk. It makes no sense. It is not a predictor of when stock will make a move and focusing on it only adds to the confusion. Let’s take one example: Emerging Market MSCI EEM
Emerging market MSCI EEM was stuck in a no decisive move zone since 2011 despite so much cheap Valuation talk. The Picture speaks for itself
Value talk in 2012:
“Equity valuations look attractive across the emerging markets, as price-to-earnings and price-to-book-value ratios remain below historic long-term averages“
Hope talk in 2013:
Even a broken clock is right twice the day. This crap and hope talk continued till 2016. Yeah PE is low but EEM remained stuck in this range. This is what Emerging market did between 2011 and 2016
Here’s what makes any asset move: Promising Future + Bullish Price Action:
People don’t buy cheap assets…they buy assets where future looks promising
Talk in 2017: There is cyclical economic recovery happening across the world. A classic reflation trade is working in favor of Emerging Market. And it’s playing out in a classic textbook fashion.
The Global recovery trade theme started gaining momentum in January 2017 and EEM made a strong comeback. All it needed was a small push above 37.5
The Most important chart to keep an eye on: MSCI EEM pic.twitter.com/RwjfwxudFx
— Deepak Singh (@smarket) February 6, 2017
And when Price Action finally obliged – this is what happened
It is not the Value Talk but Price Action that counts and you can clearly see above 🙂
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers