Valuations are quite attractive.
Bank of America Merrill Lynch noted five reasons why investors should remain tactically bullish on emerging marktes (EMs).
1) Valuations are attractive. Our analysis comparing PB with ROE less COE suggests emerging markets (EMs) are 20% undervalued. Large sectors in bigger markets look particularly undervalued, most with a "state capitalism" discount. Potential reforms from these governments could unlock this discount.
2) Sentiment is sour, as the BofAML Fund Manager Survey and our marketing trips indicate.
3) The EM growth cycle is picking up, as highlighted by the GLOBALcycle (Alberto Ades) and Global Wave (Nigel Tupper).
4) Tactical China indicators are bullish: China economic surprises, Shanghai property stocks, Shenzen small/mid-cap stocks, fine wine prices and China's EPS revisions, are all stable/rising. 5) Asia's terms of trade are rising, presaging improving EBIT margin growth.
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