LIVE MARKETS-EM Europe valuations have got ahead of growth expectations

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EM EUROPE VALUATIONS HAVE GOT AHEAD OF GROWTH EXPECTATIONS

Central and Eastern European equities, up around 30% .MIME00000PUS year to date, have outperformed other areas of the emerging market universe, which is hardly surprising, given the tectonic shift in fiscal policy in neighbouring Germany.

Indices in Poland, Greece and Czechia, which are very sensitive to improving European growth prospects, have all rallied 20-40% year to date.

Goldman have a note out Thursday saying valuations "have run ahead of the shifts in near-term growth expectations", though just to make life difficult for those who like a clear narrative, they also say that could be justified.

On Goldman's sums, MSCI EM Europe is pricing in euro area growth of 1.4% in the coming 12 months - that's punchy given their estimates are at 0.8% for 2025 and 1.3% for 2026.

So is it unjustified? Well, that depends.

Goldman also say that EM Europe is trading at a 35% discount to the broader EM index largely due to high economic policy uncertainty in the region, and so it "could see further re-rating if policy uncertainty eases."

In case you're wondering about which EM markets are most exposed to European growth, it's almost exactly what you'd expect with one possible exception.

Goldman say Greek and Polish earnings are most closely linked to euro area GDP estimates. Qatar and Chile's are the least.

South Korea is perhaps the most interesting one on that list, with the third-highest earnings beta to Euro area GDP because of its export exposure.

(Alun John)

EARLIER ON LIVE MARKETS:

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