Who doesn’t love a bargain? Whether it’s a half-price sale or finding value where others aren’t looking, paying less for something valuable is always appealing.
Right now, emerging markets (EM) are offering just that. They’re trading at their steepest discount to developed markets in over two decades - despite delivering the same earnings growth as the US.
And there’s a second discount, too. Templeton Emerging Markets Investment Trust (TEMIT), the UK’s largest emerging markets trust, is trading below its net asset value (NAV) - giving investors access to high-growth markets at an even lower price.
Emerging economies account for the majority of global growth and are home to some of the world’s fastest-growing companies and industries. Yet sentiment, not fundamentals, has driven valuations lower.
Emerging markets at half price? A double discount opportunity
Emerging market equities are trading at their largest discount to developed markets in more than 20 years. The last time valuations were this low, EMs went on to deliver a decade of strong outperformance.
Some argue that emerging markets should be cheaper due to geopolitical risks or market volatility. But does a 50% discount truly reflect the reality of today’s emerging economies?
Source: FactSet, MSCI.
Emerging economies now drive 65% of global growth, and that share is rising. China, India, Brazil, and other emerging economies are home to some of the world’s most innovative companies. They lead in sectors reshaping the global economy, such as AI, fintech, and renewable energy.
REASONS TO INVEST
TEMIT offers investors a simple way to invest in the dynamic growth potential of new economies around the world.
Beyond broad market valuations, TEMIT itself is trading at a 15% discount to its net asset value (NAV). In simple terms, investors can buy £100 worth of assets for just £85.
Why does this happen? Unlike open-ended funds, investment trusts have a fixed number of shares, meaning their prices can trade at a discount or premium to the value of their assets. Right now, sentiment toward emerging markets has pushed discounts wider across the sector. TEMIT’s discount has risen above its long-term average, creating another potential opportunity.
Historically, when investor sentiment improves, these discounts tend to narrow - potentially providing another source of upside. However, as with any discount, there is no guarantee it won’t widen further.
Click to find out more about investments trust discounts/premium in our education section
Valuations alone don’t drive performance - but history shows that extreme valuation gaps often correct as market conditions evolve. While emerging markets trade at a steep discount, forward-looking indicators tell a different story.
Earnings growth expectations for 2025 show that companies in emerging markets are projected to grow earnings per share (EPS) by 13% - the same as the US. Meanwhile, the broader MSCI World index is forecast to grow by 11%, and the UK lags at just 7%.
Source: FactSet, MSCI, FactSet Market Aggregates
Despite similar growth projections, US equities command a much higher price than emerging markets. If investors can access the same growth for far less, could the valuation gap start to close?
Emerging markets are the growth engine of the global economy, yet many investors remain underweight in their allocation.
With valuations at multi-decade lows, earnings growth in line with the US, and structural trends pointing to a potential revaluation, is now the time to take a closer look?
For more information, please read our How to Invest or contact your financial adviser.
Shares in TEMIT qualify as an investment which can be held through an ISA. TEMIT is available through a stocks and shares ISA from a number of different companies. Your financial adviser will be able to give you full details of the options available to you.
This information is issued and approved by Franklin Templeton Investment Management Limited (FTIML). It does not constitute investment advice. The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realised. Past performance is not a guide to future returns. The return may increase or decrease as a result of fluctuations in the markets, in currency and/or in the portfolio.
Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested. The analysis of Environmental, Social and Governance (ESG) factors form an important part of the investment process and helps inform investment decisions. The strategy does not necessarily target particular sustainability outcomes. The opinions contained in this document are those of the named manager(s). They may not necessarily represent the views of other managers, strategies or funds. Shares in investment trusts are traded on a stock market and the share price will fluctuate in accordance with supply and demand and may not reflect the value of underlying net asset value of the shares. The majority of charges will be deducted from the capital of the company. This will constrain capital growth of the company in order to maintain the income streams.
