Global Market Valuations: P/E, P/B, Dividend YieldsVW Staff
SocGen has some great charts on global market valuations. We have done some articles on the topic looking at Europe, SocGen looks at many other countries. Before starting with PE to measure global market valuations, SocGen notes that earnings growth has been very weak.
The problem equity markets face is that while prices had risen substantially over the last year, earnings have gone absolutely nowhere. Global reported profits, according to MSCI, are 5% below the recent peak seen in August 2011, or 4% below where they stood in February. Even in the US, a region of comparative resilience, profits are 3% lower than where they stood earlier this year. This means that P/E multiples stand considerably higher than where the stood prior to Draghi’s “whatever it takes” speech in May last year. Global reported P/E’s are 22% higher. In the US the P/E is 20% higher, and in the Eurozone, where earnings have fallen the most, the P/E is 35% higher than where it was just over a year ago. How’s that for a bit of central bank created price inflation?
Despite the problems that SocGen pointed out PE TTM is still very low in countries you would expect (Russia, Argentina etc.) see charts on global market valuations below to get a sense.
But SocGen notes how much cheaper equities have gotten over the past month, they state:
In June, Italy, China and Brazil saw double-digit declines and numerous countries are now in negative territory for the year. Sector-wise, while much has been made of the initial sell-off in the more defensive names (whether defined as low volatility, higher quality or bond proxies), losses in June mainly came from cyclical sectors such as Metals and Mining, Banks, and Industrial Engineering and Construction. The more defensive sectors, such as Telecoms, Food Producers and Pharmaceuticals, while still down, were nevertheless relative winners. So far, investors appear to be simply viewing higher bond yields as a reason to get out of equities, not as a reason to become more cyclically bullish.
Clearly, some countries get even cheaper going forward. Argentina goes from a PE of 9.3 in 2012 to 6.2 in 2014. However, IBES estimates assume countries like Greece which now has a negative PE will also have a negative PE in 2014. Clearly, slow earnings growth is expected for most of the world. Lets see some more data about sectors in various countries.
Not surprisingly, sectors which are more cyclical like industrials and financials are much cheaper than sectors such as consumer goods. Lets take a look at dividend yield.
Similar story with dividends. Telecoms have high dividends, consumer goods low etc. P/B could be the best metric since P/E TTM has been a bit distorted by slow growth in many countries.
Again, no surprises, but there are some potential bargains here. Italy has a P/B of 0.7, China has a 1.0. You can see sectors as well. We also have a chart of regional global market valuations below, check it out. Conclusion, do your own homework, but there does appear to be some value especially outside the US.