Quick Bites | Emerging Markets Too Low, or US Markets Too High?

We are all well aware that US markets have been on a tear, leaving the rest of the world, including Australia, far behind. One comparison is especially interesting – the relative “cheapness” of emerging markets (EM) versus Wall Street. We would expect the disparity to narrow over time, even though there are good reasons, as we have often written about, for “American exceptionalism”.

Source: Bank of America

So we would expect a possible rotation from US to EM in time; the chart shows we are at the bottom end of the long-term range, and hence it’s as good a time as any to begin to turn the corner. But there are of course two ways in which this can occur:

1. EM markets rise or
2. US markets fall (or a bit of both).

The chart also shows that these turning points are often not points at all, but can be multi-year trends that take a long time to establish themselves.

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