The aim of this project is to identify and to reveal the main factors affecting the market multiples values to be used in valuation in emerging markets. A number of examples suggest that comparative market valuation methodology derived from developed market’s peers should be properly adjusted to emerging markets finance. However, the significance, magnitude and relevance of the emerging finance effects over the market multiples valuation are weakly understood.  Among fundamental factors, which in fact affect the multiples values, other factors should be considered such as the country risk, expectations of further above-normal companies’ growth, and level of corporate governance, social corporate responsibility.

We analyze a broad set of multiples of quoted companies from almost all emerging markets (focusing on Russia) and make a comparison to developed peers (especially to the US market). As a result we expect to develop a fundamental valuation model which will incorporate the detected significant factors, and which could be successfully used for relative valuation on emerging markets.

The number of papers determining the multiples values for developed (and sometimes emerging) countries is quite vast. Moreover there exists academic literature, which states a significant discrepancy between multiples level of emerging and developed countries (Damodaran, Pereiro). However there is practically no fundamental analysis devoted to the explanation of this fact.  We expect that our model will successfully deal with such a discrepancy and will shed light on this specific problem.

On the first stage we collected a large panel data on companies' multiples and fundamentals from Russia and the USA. On the second stage we developed an econometric model allows to estimate the difference in multiples which is not associated with fundamentals. On the third stage which is in progress we expect to derive estimates of unsystematic risk which is responsible for the gap in multiples.