Emerging markets could be the next bubble to watch out for, but the doesn't mean the run is over yet, according to John-Paul Smith, chief strategist for Pictet Asset Management Ltd.
Emerging markets could be the next bubble to watch out for, but the doesn‘t mean the run is over yet, according to John-Paul Smith, chief strategist for Pictet Asset Management Ltd.
Speaking today in Atlanta at the Investment Management Consultants Association's fall meeting, Mr. Smith said investors might be at risk of chasing performance with regard to emerging markets.
“Global funds are hugely overweight emerging stocks compared to developed-market stocks; it's higher than ever,” he said. “Clearly, we're not yet looking at anything like the tech bubble, but on a stock-for-stock basis, investors are just paying a little too much for emerging markets.”
On a traditional-valuation basis, including price-to-book and price-to-earnings ratios, Mr. Smith said, the numbers don't suggest a buying opportunity. However, he added, even in what might be the early stages of a bubble, emerging markets could still have some short-term upside.
“In absolute terms, over the next 12 to 18 months, you can probably still make some money in emerging markets as long as you're careful,” he said. “But as a strategist, I say you can make more money in developed markets, particularly the United States.”
In addition to concerns about the recent outperformance of several emerging markets, Mr. Smith warned of the category's overdependence on Chinese growth and commodities; microeconomic issues, including poor corporate governance; and volatility in several Eastern European economies.