It has never been more expensive to own shares of consumer companies in emerging markets, leading some analysts to advise it looks like a good time to sell them.
Consumer shares are "over-owned" and will probably trail the broader market, Jonathan Garner, Morgan Stanley's chief Asia and emerging-markets strategist, wrote in a research report.
Overall, emerging-market consumer companies are valued at the most expensive levels on record just as surging food and energy costs curb household spending from Sao Paulo to Shanghai.
"Inflation has really thrown a curve ball," said Jacob de Tusch-Lec, who helps oversee about US17 billion as a London-based money manager at Artemis Investment Management. "With food prices and energy prices being so high - and it's a big portion of consumer spending in Asia - that could put a bit of a stop to that story."
Shares in the MSCI Emerging Markets Consumer Discretionary Index traded at a 15-year high of 2.6 times net assets last week, according to Bloomberg data. Wynn Macau, owned by billionaire Stephen Wynn's casino company, fetched a record 28 times forecast profit. Mahindra & Mahindra, India's biggest sport-utility vehicle maker, has a price-to-book ratio 53 per cent higher than global peers, while Brazil's Cia Hering, producer of Hering brand apparel, commands a 15 per cent premium.
Economic growth and supply shortages sent a UN gauge of food prices to a record last month, cutting the buying power of 2.8 billion people in Brazil, Russia, India and China who spend 19 per cent of their income on groceries, compared with 6 per cent in the US.
The MSCI emerging-market consumer index surged 36 per cent during the past year, the best performance among 20 industry gauges worldwide, as investors lifted holdings to their biggest "overweight" position. But profits at hotels, car makers and retailers may get squeezed as input costs, including oil, rise faster than retail prices, according to Morgan Stanley.
Rising benchmark interest rates will also increase company borrowing costs, said Emil Wolter, a Royal Bank of Scotland Group equity strategist who has an "underweight" rating on Asian consumer shares.
* with Bloomberg