The emerging market currency rout has put India and South Africa on the opposite ends of the BRICS bloc.
India remains the most expensive among peers as the depreciating rupee—the worst performing currency in Asia this year—hasn't so far rubbed off on the equity market. The benchmark Nifty 50 Index's one-year forward price to earnings multiple remains one standard deviation higher than the five-year average. A standard deviation from the mean is a measure of volatility.
South Africa, which recently entered a recession, is trading more than one-standard deviation below the five-year average PE multiple.
The MSCI Emerging Markets Index entered bear territory falling more than 20 percent from the year's high on the back of a stronger U.S. dollar and higher benchmark yields.
This is likely to worsen before it gets any better for emerging markets excluding China, Mark Matthew, managing director at Bank Julius Baer, said in a recent research note. Emerging nations, including India, have been downgraded to market weight from overweight, he said.
India's valuations are not the reason, Matthew said, but he expects continued stress on emerging currencies amid a strong U.S. economic environment. The view on Chinese equities remains constructive as they trade near historically low valuations.
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