On Today’s Trading the Globe, we point out the obvious: Brazilian stocks are now cheaper than just about anything else out there.
Using the MSCI indices as their benchmarks, Credit Suisse crunched the numbers and discovered that Brazil (EWZ) is trading at about 1.37 times book value:
That is not only obscenely cheap by historical standards, but even lower than the 1.47 times book value we saw at the depths of the 2008-9 credit crisis.
After Brazil, Egypt (EGPT) and Israel (EIS) are both extremely undervalued on a price-to-book basis, trading roughly where they were at the 2008-9 lows:
And in Asia, China is near its recession lows — 1.76 times book value –just 7% above where funds like FXI were trading in the 2008-9 downturn:
On an earnings basis, all emerging markets are at an extraordinary place, but cooling global growth will make everyone question these companies’ power to sustain their profits.
Emerging markets still have outflows of $20 billion year to date, and remember: we saw the asset class bleed $100 billion in 2008. It could get a lot uglier before we see the bottom, but that bottom will be a once-in-a-generation low-valuation entry point.
I still like Brazil — 8.3 times earnings — and other Latin markets more than most. These were the most beaten-up opportunities out there coming into the slide and have the most value baked in.
Watch currencies to get your cues. The Brazilian real (re-AL) can get cheaper from here, so 1.67 to the dollar may be a good trigger point to come in.
In terms of individual stocks, Brazilian banks are still in the best position. Margins are improving and as inflation pressures ease, these valuations look attractive.
Bradesco (BBD) in particular is trading at an absurd 1.8 times book value, while its rival Itau (ITUB) has been pushed down to barely 1.9 times book.
Elsewhere in Latin America, VALE is now trading at 4.9 times earnings, which we have not seen since November 2008. Peruvian precious metals producer Compania Mina Buenaventura (BVN) also looks cheap after a deal on a windfall tax takes pressure off local miners.