Strategy Note /

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
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
8 April 2021
Published byTellimer Research

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.