GEM Equity Strategy-: Japan impact – valuations are very different from Kobe (1995): Credit Suisse,

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GEM Equity Strategy-------------------------------------------------------------------------------------------
New report: Japan impact – valuations are very different from Kobe (1995)


● Valuations are very different from Kobe in January 1995. With our
Japan and global strategy teams using the Kobe earthquake in
January 1995 as a rough guide, we note that from a GEM
perspective, valuations are very different. During the 1995 Kobe
earthquake, the TOPIX fell 21% while MXEF (MSCI Emerging) fell
15%. But Figure 1 highlights that in January 1995, our 4 factor
GEM valuation indicator was 87% overvalued compared with 8%
undervalued currently. The four factors used are historic P/E, P/E
adjusted by inflation, dividend yield and the earnings yield versus
the bond yield. The historic P/E is 14.1x versus 22x in January
1995. The historic dividend yield (DY) is 2.4% versus 1.5% then.
● GEM 4 factor valuation indicator has fallen to 10% to 15%
undervalued in non-recession corrections. While our 4 factor
valuation indicator has dropped to around 25% undervalued in
recessions (1998 and 2001), we note that it has fallen towards
10% to 15% undervalued in non-recession corrections including in
last year’s correction.
● MSCI China tops consensus EPS upgrades in March. While we
upgraded Turkey on 3 March, as it became the most undervalued
GEM market, MSCI China has seen the strongest upgrades to
2011E consensus EPS in March. Significantly, Chinese banks are
seeing the first upgrade to 2011E consensus EPS in nine months.