What are we looking for?
Emerging market equities reflecting a combination of positive price momentum, upward analyst revisions and attractive valuations.
The screen
Looking back at U.S. President Donald Trump's first 100 days, there is growing concern among investors over campaign promises to revamp Dodd-Frank, cut taxes and boost public spending after the administration failed to push through health-care reform and unveiled a tax plan that's short on details.
Reuters' monthly asset allocation poll of 47 global fund managers and chief investment officers showed the highest allocation to equities in 15 months, yet a reduced exposure to North American stocks, from 41.8 per cent in January to 40.5 per cent last month.
Instead, participants are bullish on emerging markets – citing larger expected inflows, a synchronized global growth story and attractive valuations – raising their holdings to 15.4 per cent, up from 13.3 per cent over the same period.
Using the MSCI international emerging markets index, Thomson Reuters' StarMine quantitative models were employed to screen across MSCI EM constituents (829 in total) for the top 25 percentile ranking stocks (a score of 75 or better) relative to emerging market equities. Specifically, here are the three models:
-The Price Momentum model evaluates stocks' medium- and long-term price momentum. The long-term component exploits the tendency of stocks with six-month average prices greater than their 12-month average to continue to outperform. The medium-term component similarly rewards stocks whose 10-day average is greater than their three-month average.
-The Analyst Revision model ranks stocks based on clusters of upward-earnings estimates. The model is driven by the premise that revisions by top-ranked analysts are highly predictive of future revisions by laggard analysts.
-The Intrinsic Value model is based upon a dividend discount approach that incorporates analyst earnings forecasts, combining them with proprietary adjustments to project future dividends. These dividends are then "discounted" to present time to generate an intrinsic value.
More about Thomson Reuters
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What did we find?
The screen highlights the top 20 companies that match our criteria, ranked by market cap. Constituents' domiciles range from South Korea to Brazil, with Samsung Electronics Co. Ltd. topping the list at more than $305-billion (U.S.).
Investors should conduct further research before investing.
Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.