Despite the recent correction, emerging markets still have large gains as compared to prices a year ago. Valuations are less favorable, with investors now accustomed to paying a premium for the expected high growth of these investments. However, the top two entries on our list, S. Korea and Taiwan, defy this trend by having both high recent returns and very low valuations.

Some speculate that the low valuations in Europe are due to strong currencies and/or low growth expectations. Whatever the cause, the PE ratio of the UK index has now fallen to 12.5, 17% lower than that of the US, and 33% lower than China’s average PE. Belgium’s PE ratio is even lower and France’s only slightly higher.

In some markets, it can be argued that prices have moved far ahead of earnings and valuations have risen too quickly. China is a well-known example, but Mexico, Singapore, and Malaysia also have yearly returns in the 30% to 50% range, while earnings growth has been much more modest, at only 13% to 17%. PEG ratios for all of these indexes would be 2 or 3, while for many other countries, the ratio would be one or less.

Taiwan and S. Africa stand out as potential values. Earnings growth in both countries has been extremely high, but prices have not risen fast, resulting in very reasonable valuations. In Europe, Spain and Italy would also meet the same criteria. For the largest developed economies, the UK has about the same level of earnings growth as the USA, but has the significant pricing advantage of a 20% lower valuation

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