China Is Now Second Cheapest Equity Market Among EM (P/B Z-Score Approach)

• China equities are now among the ‘cheapest’ EM equity markets following the recent plunge in stocks (second cheapest after Russia).
• The strict ‘Zero-Covid’ policy has been weighing on growth expectations and therefore have left domestic risky assets vulnerable in recent weeks (combined with geopolitical uncertainty and renewed crackdown fears).
• The Hang Seng Index is now down 27% since last month, over 40% since its February 2021 peak and over 45% since its all-time high reached in early February 2018 when liquidity peaked in the EM world (pre-Covid).
• 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, India remains the 'most expensive' market among the EM world, with a current price-to-book ratio of 3.76 (vs. 1.65 for EM MSCI index).

Source: Bloomberg/MNI.