What is a common problem with valuing emerging market (EM) companies?

The challenge of valuing emerging market companies often stems from the lack of quality public comparables with the subject firm. In emerging markets, there may be a scarcity of firms in similar industries that are publicly traded, making it difficult to find accurate benchmarks for valuation. This lack of comparables means that traditional valuation methods, such as comparable company analysis, may yield unreliable results.

Emerging markets also tend to have varying degrees of market efficiency, transparency, and investor knowledge, which can further complicate comparative analyses. Without reliable data and comparables, valuing a company becomes more subjective, and analysts may need to rely more heavily on assumptions, projections, and qualitative factors, increasing the uncertainty in the valuation process.

The other options, while they touch upon real issues within emerging markets, do not capture the fundamental difficulty in valuation as effectively. For example, while it's true that some EM companies may be overvalued or face challenges related to regulations, the core problem of establishing reliable value through comparables is often the most significant hurdle faced by analysts. Similarly, whether or not companies adhere to international accounting standards is pertinent but does not directly address the overarching issue of finding an adequate basis for comparison in valuation.