Transcription
It shows emerging market earnings expectations and for the first time in a very long time, they reach a new all-time high. That matters more than most investors realize because earnings expectations are not prices. They are what analysts believe companies will actually earn in the future. Prices can move on hype. Earnings expectation move on real business activity. And this chart is telling you up something very specific. Emerging markets are quietly rebuilding earning power while most investors are still focused elsewhere.
The chart is titled MSCI emerging markets earnings per share and it means earnings per share EPS, how much profit companies are expected to make divided by their shares. So we're looking at net income here, basically. I would have rather cash flow, but we'll do with that. So the vertical axis shows the dollar value, roughly 15 to 120. So the higher you are, the more expected earnings is expected from the company. The horizontal axis runs from 2015 to 2026. Each colored line represents how earning expectation evolve within each specific year. So each line shows how analysts revised earning expectation during that year. The 2020 line shows how earning expectation collapsed during COVID. Okay. So the 2020 line, if you look at it, that's the green line. See in the middle, it just collapsed all the way down because of COVID. The 2022 line shows earnings were revised down during the inflation shocks. You know, after COVID, lots of money was thrown into the system and Biden gave lots of money to everyone. And uh, basically uh, you had um, Powell that said that this is a transitory uh inflation that's not going to stick. So I am not going to raise the rates. Mistake. He should have raised the rates and he didn't. So we got hit with inflation at that time. And 2025, 2026 shows where expectations are now. So now you could compare the cycles. You could see 2026 is a red all the way to the right. You know, what, what stands out immediately? Well, the red line is on the far right. 2026 ends around 109. This is the highest earnings expectation ever recorded for emerging markets. This is not a bounce. This is not a short-term recovery. This is a structural high. Compare this to the past cycle. In 2018, the peak was around 90. 21 around 100. 22 rolled over sharply. 2023 reset lower. Each cycle used to fail at lower levels. Now for the first time, earnings expectation have pushed above every prior ceiling. That's a regime change.
And what caused this shift? Well, let's talk about it. Emerging markets already took their pain from 2018 to 2023. Trade wars, strong dollar, rising global rates, COVID, China. I mean, emerging market absorbed these shocks earlier and harder than developed market. They got cost, they reduce leverage, they lower expectation, that helps them reset for recovery. And developed markets are now facing what EM faced earlier. When emerging market were adjusting, developed markets were inflating valuation. Earning expectations stayed optimistic. Debt levels expanded. Now the pressure is shifting back. This chart suggests that earnings growth is migrating, not disappearing. I mean, you still have to make money and don't forget we're going to different countries now and then different countries have access to to commodities, right? The the the and and and everything is becoming more localized. Everybody's retrenching. Everybody wants to be make their country great again. Right? Right?
So, this is critical. Earnings expect, they should move before long-term price trends. Prices chase earnings over time. So, when you see earnings making new highs, it's a signal that capital flows may follow later. With my members, paying members, um, I do show them and I did have a discussion on that and I show them. Well, these are the things that you could do. We're learning, but we're making and we are earning in 2023. Earning expectation fell sharply. 2024 they stabilized. 2025 they recovered and 2026 they broke out. So valuation is lower than past turning points. Every cycle shows violent swings. 2020 collapse, 2022 breakdown, and the current move is steadier. So why most investors are missing this? So why isn't everyone talking about this? Well, because attention is elsewhere. Big tech headlines, AI, domestic stock indices, short-term market moves. Emerging markets don't grab attention until prices explode. But then the earnings move is already priced in. It's too late.
So, let's be clear, the chart does not mean every emerging market stock will go up and there will be no volatility and this is a straight straight line trade. It just means that the earnings foundation is stronger than has been in years. So let's summarize this message with simple terms. One, emerging market earnings expectation are at a new all-time high. Two, this is happening after years of underperformance. Buy when everybody else is selling. I tell that to my members all the time. Earning cycles tend to lead price cycles. Four, the move is study, not speculative. And five, most investors are still underexposed. This is not a screamy chart. This is a whispering chart. And historically, these are the chart that matters most.