Markov Regime Switching Risk-on/Risk-Off for Major Equity Indices

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End-Of-Day Prices as of 27 Sep 2025. We thank EODHD.com for making the Indices data available to us.  With EODHD.com You can be assured that the data is clean, reliable and of the highest quality.  Sure beats trying to fetch data from Yahoo Finance.  

For methodology of this post please refer to our original blog post at https://ngtiankhean.blogspot.com/2025/09/markov-regime-switching-model-for.html

Below are the  Markov Regime Switching Risk-On/Risk-Off readings for SP500, DJI, Nasdaq100, STOXX 600, Nikkei225, CSI300 and HSI. 

Major global equity markets have a significant positive correlation with the US equity market, as well as the US economy. The US economy is currently showing signs of being in a stagflation- while economic indicators such as payroll data, manufacturing output indicate a recessionary outlook, gold prices,  the CPI and bond yields indicate an inflationary outlook.  But one thing for sure is that the Fed's lowering of the interest rate will create assset bubbles, especially in the equity markets. 

Thus it is not surprising that all the 7 major Indices we cover show a risk-on environment, never mind the overvaluations. Which major equity Index is the least overvalued? Answer: China's CSI 1300. As of late August/early September 2025, the Price-to-Earnings (P/E) ratio for the CSI 300 Index was approximately 14.4x (using the Trailing Twelve Months method) and the Price-to-Book (P/B) ratio was around 1.87x according to data from iShares Core CSI 300 ETF. Although the longer term outlook for the CSI300 is positive as China diversifies its export markets away from US Tariffs, and stimulates its domestic economy, the ride up will not be straight up but bumpy. Nevertheless with huge budget and export surpluses and foreign reserves, the China government has lots of leeway to implement stimulus measures  for domestic consumption which in 2024 accounted for 56.8% of its GDP according to World Bank data.    

CSI300


SP500

DJI
Nasdaq100

EURO STOXX600

Nikkei225


HSI









 


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