Global stock markets show improving valuations

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A study of the dividend yields and price-earnings multiples of a list of 100 global stock markets makes for interesting reading.

With the sharp decline in stock markets over the past few months, valuation levels have obviously improved markedly. This is illustrated by the fact that 62% of the indices are now trading at PEs of less than 10, compared with a figure of 39% a mere one month ago.

The following graph, courtesy of US Global Investors, illustrates the PE compression that has taken place in developed and emerging markets respectively since 1999/2000.


Value is undoubtedly starting to return to some stock markets, even if one factors in that the valuation metrics are based on historical figures and need to be adjusted for reduced earnings and dividend cuts. And, needless to say, many of the markets have made it to the top (i.e. “cheap”) end of the rankings on the back of pretty dismal circumstances.

Although the valuation tables do not represent a shopping list, they are a handy screening tool to trigger further research.

Click here or on the thumbnail below for the global index valuation tables.


Source: Fullermoney (based on data from Bloomberg), November 6, 2008.

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5 comments to Global stock markets show improving valuations

  • Michael Hargrove

    The valuations may indeed appear to be reasonable based on trailing earnings. But, you also need to factor in a global slowdown, even perhaps a global recession. In this scenario, as earnings forecasts are steadily reduced over the next few quarters to increasingly lower levels, then current valuations may indeed be much too high.

  • I agree with Michael Hargrove. I think we are in for another 20% reduction in per share price values just to discount the further erosions in future earnings caused by the continuing global recession.

  • Aaron McMurray

    I agreee with Michael,

    The key to this somewhat fraduulent metric is the “E” – if downside earnings prospects were pessimisticvally projected – the current prices might indeed reflect PER’s of 15+.

    In my opinion a key to defelating (individual) stock prices in the short to medium term will be the dilution of the existing shareholder equity through capital raisings as tradtional debt instruments are squeezed.

    This is where metrics such as PER’s are impotent as the “E” does not pick up the intrinsic value of an ordinary share – “P” will fall on a constant “E” as the more intiutive holders shed stock

  • Tim

    I think it would be interesting if you can put the MSCI Emerging Market index into the chart to see if low point in the valuation equals to bottom in stock market or is there a time lag between valuation and actual market action.

  • Frank Wordick

    A number of people have already touched on the problem of future vs. historical valuations. If one consults the S&P web page, he will see that future earnings are slated for a steady decline at least well into 2009, meaning that P/E ratios ought to again rise. However, cluey sorts like Edwards, Sedacca and Grantham believe that share prices will continue to fall, the former two believing that the S&P 500 will bottom at around 500. This means that S&P 500 P/E ratios should decline. Therefore, it’s your estimate if prices fall further than earnings or vice versa. In answer to Tim’s intelligent and perceptive question, in 1974 the US market made a serious bottom. It then turned around and rose strongly until in around 1982 the S&P 500 made a valuation low of around 7. It continued up from there. If you followed the value investors, who were too clever by half, gave the price low a miss and held your money in a money market account, you would have had far less money to tip into the US market at the valuation, that is P/E ratio, low. I wouldn’t be surprized if history repeated itself during this cycle in the US market.

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