Why Oaktree Sees “Great Potential” In This Part Of The Stock Market

Why Oaktree Sees “Great Potential” In This Part Of The Stock Market
Andrew Rummer

almost 3 years ago1 min

Mentioned in story

The cheapest emerging market (EM) stocks present an inviting opportunity for investors after underperforming other parts of the market for many years, according to US investment firm Oaktree Capital Management

The upper chart, taken from Oaktree’s new report, shows how EM value stocks – those with cheaper prices compared to profits – have lagged behind EM growth stocks – those with faster-growing sales – over the past two decades. 

The lower chart plots the price-to-earnings ratio of the EM value index divided by the EM growth index’s price-to-earnings ratio – to show EM value stocks are near the cheapest they’ve been relative to EM growth stocks in at least 20 years. 

“For years, record-low interest rates and a surge in passive investing have helped high-growth US stocks – especially those of technology companies like Facebook, Microsoft, or Alphabet – outperform equities in cyclical sectors, which are more sensitive to the economy’s health, as well as stocks from other geographies,” Oaktree wrote. “But in the last few months, many investors have begun rotating away from these high-priced stocks toward equities offering the potential for both returns and reduced risk. Our approach to investing – buying assets for less than we think they’re worth – suggests it’s now wise to target the latter.” 

If you agree with Oaktree’s reasoning, there are several exchange traded funds (ETFs) available that track EM value stocks, such as the iShares Edge MSCI EM Value Factor ETF.

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