Terms of Trade: The Quiet Tailwind Behind Emerging Market’s Comeback

A common thread across emerging markets is an improvement in their terms of trade, which is helping to strengthen external balances, support currencies and improve the earnings outlook for domestically-oriented sectors. Paul Psaila and Uday Tharar explain.

Stock prices reflect the value of current earnings and the option to make investments that create value, the present value of growth opportunities (PVGO). We analyze how PVGO as a percentage of price serves as a measure of market timing and find it has some use. Next, we observe that the stocks of companies with low PVGO percentages outperformed those with high percentages. Lastly, a simple analysis suggests the PVGO percentage provided a higher return than the value factor in recent years.

In his most recent TAKE, Senior Portfolio Manager Andrew Slimmon reminds investors to think beyond the macro. Instead, he encourages a focus on the micro, specifically the extraordinary Q1 results delivered so far that are forcing analysts to raise future earnings estimates.

In today's complex macro environment, active fixed income management offers institutional investors both stability and return potential.