China and Hungary Now Cheapest Equity Markets Among EM (P/B Z-score)

• Selling pressure has been surging in Hungarian risky assets following Orban's tax plan, which will use emergency measures for a Ukraine crisis windfall tax on large companies.
• Hungarian equities fell below the March lows yesterday before consolidating higher; the BUX index is still down nearly 30% since its January high.
• Hungarian equity market is now the second cheapest among the EM world following the recent selloff, and the current climate (i.e. geopolitical uncertainty, stagflation risks) leaves domestic risky assets vulnerable in the short run.
• China equities remain the ‘cheapest’ EM equity markets (excluding Russia from ranking) as zero-Covid policy continues to weigh on the real economy and domestic risky assets.
• Easing signals from China officials combined with the rebound in 'liquidity' (TSF 12M Sum) in recent months have not been enough to stimulate risky assets, which continue to trade at low levels relative to historical standards.
• Momentum on the Hang Seng Index remains bearish in the near term; the index is down nearly 20% since its January high and down 35% since its February 2021 peak.
• In this chart, we compute the z-score of P/B ratios of the 16 EM equity markets (15 countries + MSCI Emerging Market index) using over 10 years of data (starting January 2010) and then rank them from 'cheapest' to 'most expensive' based on the distance between the minimum value and the current z-score.
• At the top, Czech is the 'most expensive' market among the EM world, with a current price-to-book ratio of 2.13 (vs. 1.48 for EM MSCI index).

Source: Bloomberg/MNI