Emerging markets may be "the trade of a decade"

Emerging-market assets are so cheap that they may be “the trade of a decade”, according to Christopher Brightman, chief investment officer at Research Affiliates (Pimco). Brightman said that EM stocks and bonds appeared cheap relative to historic price action as well as alternatives. The strategist of Research Affiliates remarks that "the exodus from emerging markets is a wonderful opportunity and quite possibly the trade of a decade for the long-term investor. With global stock markets selling off in early 2016 following a challenging 2015, and jittery investors pulling the sell trigger on their risky investments, the fear of emerging markets is pervasive. A number of events – slowing growth in China, an unexpected depreciation of the Renminbi, tumbling commodity prices, Middle East tensions, and recessions in Brazil and Russia – have applied downward pressure on emerging market stock, bond, and currency prices. We are sympathetic to those alarmed by these events and recognize that this understandable fear creates today’s bargain prices. While markets are not efficient, neither are they irrational". "Offering high yields, favorable demographic trends, strong productivity growth prospects, and a long-term trend of improving credit quality, emerging market asset classes are secularly attractive", he said. Across commonly used valuation metrics, emerging market equities are "exceptionally cheap". Look at the Shiller P/E, which divides real prices by the ten-year average of real earnings per share, It fell to 10 in January. There have been only six times when the measure has dipped below 10 over the past 25 years. In the following five years, the stocks rallied an average 188 percent, according to Brightman. 

Developing-market securities accounted for 35% of the Pimco All Asset Fund and 39 percent of the Pimco All Asset All Authority as of Dec. 31.