The improved growth momentum is helping lift analysts’ earnings per share expectations for EM stocks, as you can see in the chart below. The rise of about 8% in the dollar amount of earnings per share from the late-February low is double the 4% increase seen for developed market stocks.
It isn’t just the outlook for earnings that is lifting EM stocks; valuations are also on the rise. The risk of a hard landing in China has been the center of concern among EM stocks for years, but the increase in China’s PMI and corresponding fall in China’s credit default swaps (a market-based measure of the potential for a crisis in China) is lowering investors’ perception of risk and supporting price-to-earnings ratios. 