Emerging market macro growth and equity value in one chart

  • High macroeconomic growth and cheap versus history equities: Egypt, Indonesia, Pakistan, Philippines
  • Low macroeconomic growth and expensive versus history equities: Brazil, Kuwait, Nigeria, Qatar, Russia
  • Local GDP growth may de-couple from equities if global growth dominates (Korea, Taiwan), or few direct oil plays (GCC)
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).

Emerging market macroeconomic growth and equity value

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.

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