The FT's merging markets editor James Kynge analyses companies in eastern Europe, the Middle East and Africa that appear relatively cheap in terms of stock market valuations, while experiencing rapid earnings growth.
Produced by Alessia Giustiniano. Filmed by Petros Gioumpasis
Buying equities late in the cycle can be like arriving at a self-service buffet just as the kitchens are closing. You pick what you can from a motley collection of unloved leftovers and hope to be pleasantly surprised. But for those investors who have the stomach to hunt, there may be some tasty morsels out there.
Russian bank Sberbank, for instance, recently posted a record profit for the third quarter, and yet looks cheap with price to earnings ratio of about 6.8. TAV, a Turkish airport management company, has seen its net income and profit margins surge this year but has a relatively modest P/E ratio of 9.7. Both stocks are identified on a lengthy list of companies in eastern Europe, the Middle East, and Africa that appear to be relatively cheap in terms of stock market valuations while experiencing rapid earnings growth, according to the Bank of America Merrill Lynch. Indeed, Russia and Turkey stand out as markets that for different reasons have been left behind by the emerging markets rally, says David Hauner, head of strategy at BAML.
But of course there are big picture trends that could yet intervene. A US dollar bounce, driven partly by the profit repatriations that could follow the expected adoption of US tax cuts, may hit emerging markets in general. China's expected slowdown in growth is another uncertainty. If the price of oil rises, as some expect, it will benefit some countries such as Russia but not others.
In addition, history shows that defining the concept of cheap can be a slippery science. Russia's market may look cheap compared to others such as Saudi Arabia, Poland, and even Egypt, but when compared with historical prices, it's close to its average levels since the year 2000. The same applies to Turkey. As with self-service buffets, there can be a reason why the leftovers appear unloved.