Tuesday, July 24, 2007

A bubble in emerging market stocks?

This graph says yes. It compares the evolution of the Nasdaq Composite between June 1994 and June 1999 and the MSCI Emerging Markets index between June 2002 and June 2007.

We know how the Nasdaq story played out after a few more months of spectacular rises. But appearances can deceive. The main difference between these two? The Nasdaq's P/E was well north of 100x at its peak, while the P/E for emerging markets as a whole is around 15x today.

Of course, this doesn't guarantee that emerging market stocks are a good investment opportunity today, but at least they're not obviously overvalued.