Emerging market macro growth and equity value in one chart

Following the release of the latest IMF global economic outlook this week we compare macroeconomic growth forecasts (2021-26 real GDP compound annual growth rate) with equity market valuation (trailing price/book versus 5-year median).

We make two observations:

• Countries with high growth (above 4.5% 2021-26 CAGR) and cheap equities versus history (10% or more discount to 5-year median PB):

  • Asia: Indonesia, Pakistan, Philippines.

  • Africa: Egypt, Ghana, Tanzania.

  • Europe: Georgia.

• Countries with low growth (below 3.0%) and expensive equities (above 10% premium):

  • Asia: South Korea, Taiwan.

  • Africa: Nigeria, Zimbabwe.

  • LatAm: Brazil.

  • Europe: Iceland, Russia.

  • Middle East: Kuwait, Qatar.

The caveat here is that, of course, there are good reasons why national GDP growth should not be closely linked to locally-listed equities, for example:

• Global growth drivers of Tech companies in Korea and Taiwan are much more relevant than local growth.

• There is little direct (ie high free float) representation of the key sectors driving GDP growth, such as the oil and gas sector in the GCC Middle East equity markets.