Emerging markets trade at historic discount; GSEE offers exposure

A recent analysis of long-term valuations shows emerging market equities trade at a wide discount to U.S. stocks on a cyclically adjusted price-to-earnings basis. The cyclically adjusted P/E for emerging markets is about 16, compared with about 38 for U.S. equities.

Goldman Sachs’ MarketBeta Emerging Markets Equity ETF (GSEE) provides exposure to mid- and large-cap companies in emerging markets. The fund tracks the Solactive GBS Emerging Markets Large & Mid Cap Index and charges an expense ratio of 36 basis points. GSEE reached its fifth year of operation last year.

Performance data for the fund show a 12-month return of 38.2% and a three-year annualized return of 21.2%. Peer-group averages for the same periods are 28.5% for 12 months and 13.5% for three years. Year-to-date performance for GSEE is 23.2%.

Technical indicators for the fund show the share price trading above both the 50-day and 200-day simple moving averages. The fund is classified among regional equity peers that include Asia-Pacific exposures and has recorded stronger short- and medium-term returns than the category average.

The valuation gap between U.S. and emerging market equities follows more than a decade of U.S. stock outperformance and net capital flows away from emerging markets. The gap is visible in cyclically adjusted valuation measures and in the relative performance of exchange-traded products that target emerging-market stocks.