EM and DM: converging? | beyondbrics

EM and DM: converging? | beyondbrics:

"A fascinating series of posts over at Aswath Damodaran’s Musings on Markets. Damodaran has been looking at risk and equity valuations in emerging and developed markets. He began with a round up of risk in emerging markets, where he found investors believe emerging markets are getting riskier. He concluded by using three different multiples to look at how investors price risk and return – and found he had much to learn.

But it’s the second of his three recent posts that caught our eye, where he looks at the thorny issue of convergence or divergence between EM and DM.

We warmly recommend clicking through to the post. But for a speed read, he looks at PE ratios, price to book equity ratios and return on equity for 24,429 EM companies and 36,067 DM ones to conclude that the two markets are indeed converging, for three reasons: declining profitability at DM companies relative to EM ones, declining differential equity risk premiums between the two, and declining differentials in real growth."

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