We've suggested buying quite a few that fit that bill over the past few years and been rewarded with huge returns - you could have doubled your money on British American Tobacco in under five years, and made 170 per cent ignoring my advice to sell SABMiller. I learnt a valuable lesson with that unsuccessful tip - that there was little point swimming against the tide of positive sentiment towards emerging markets, even if you had to pay over the odds to access it this way, and with Western consumers still being battered by recession.
But over the past year, the rush of money into these emerging-market proxy stocks had pushed their valuations to levels even their 'quality' status couldn't justify. BAT had re-rated from 13 times earnings when we tipped it in 2009 to an eye-watering PE of 22 when it hit its all-time high in April. The same is true, to an even greater extent, of Diageo, SAB and Unilever, as you can see from the charts below.
Those ratings are now being tested. Unilever, of course, suffered its first profit warning in a decade this week, with the blame laid squarely at the feet of its emerging market businesses. BAT's shares, meanwhile, have retreated 16 per cent since April. More specifically, the culprit has been emerging market currency devaluations, which means western companies have had to sell more there just to stand still, even as demand has moderated.
Yet for all their current growing pains, emerging economies are still growing on average three times more quickly than their stagnant western counterparts, and have a huge amount of catching up to do in respect of consumer spending power. And currency troubles never last - it wasn't so long ago that you could buy two dollars for a pound and companies with significant US exposure were the ones worrying.
And as John Baron argues this week, the current distaste for emerging markets means lowly valuations and a great opportunity to gain exposure if you missed out on the last wave of emerging market growth. If you need a reminder that the best time to buy is when prospects have been all but written off, take a look at our best of British stock screen this week - over the past year companies selling almost exclusively to the UK performed twice as well as the wider FTSE 350.
As for the best of British consumer goods exporters, their emerging market exposure could remain a drag for some time - but if that means their share prices revert to more appropriate levels for what were once defensive stalwarts, they'll once again be a great way to access to a long-term story that remains very much intact.
Rolling historic PE ratio (left scale) and dividend yields (right scale)
