If there's one good thing to come out of the emerging market rout, it's cheaper valuations.
The MSCI Emerging Markets Index's 11 percent retreat in local currency terms so far this month has pushed its 12-month forward price-to-earnings (P/E) ratio to 9.4 – a touch below its 5-year average of 10, according to Capital Economics.
The valuation gap between MSCI World Index - which tracks 23 developed markets - and MSCI Emerging Markets is now at its widest point since before the global financial crisis. The MSCI World Index is trading at a forward P/E ratio of 13.9. A higher P/E ratio implies that stocks are relatively pricey compared with earnings.
"Emerging market equity valuations are no longer stretched either in an absolute or relative sense following the summer sell-off," said John Higgins, chief markets economist at Capital Economics.
"Once the recent volatility in global markets settles down, we think that these valuations could rise, leading to some outperformance of EM equities in the months ahead," he said.