Global P/E Ratios

Last week we sent the chart below to our subscribers that highlights the returns of each country's major index since March 12, 2003 (the start of the current bull market of the MSCI World Market Index). We compared these returns to the current P/E ratios (blue dots) of each index along with the change in the P/E ratio (black lines) since March 12, 2003.

Interestingly, the four indices that have seen the largest price increases (South Africa, Mexico, India and Russia) currently have the lowest P/E ratios. Japan's Nikkei has had the largest P/E decline, going from 102 to 33.7.

In the past we've highlighted that P/E ratios have actually compressed in the US during this bull market, but this holds true globally as well. Only 2 of the 17 indices have seen an expansion in their P/E ratios since the start of the global bull market, and those increases were minimal, indicating that earnings growth has far exceeded price rises, even as prices have soared.

as of 6/13

Update: India's P/E is actually at 17.74.  We had a calculation error that showed the P/E as 5.63 in a prior chart, so actually 3 of the 17 countries have had P/E expansions.

Comments

[BDG123]

That's quite an interesting graphic. I've never seen a plot quite like that. Very creative visual representation.

So, Mexico, Russia and South Africa have what in common? They are driven hard or nearly exclusively in the weighting by commodities. Ever see a commodity stock with a PE of 40 at this stage of the business cycle? No, more like 10 or 12 or something similar. Does that mean these exchanges are cheap? Well, I guess that depends. Why does VLO, PD, XOM, etc have a peak earnings cycle PE so low? Because their profits are highly cyclical and when they turn down, PE's can expand to 20, 40 or even higher as profits shrink. So, I guess you could say these markets are cheap if you expect oil, copper, platinum, etc, to continue to stay elevated after the highest rate of change increases in 100 years. All of the prior significant increases led to economic disaster. Will this cycle be different? Likely not. So, why are PEs so low? Because the markets know this. Hence, PE contraction.

[Jon]

Something looks wrong with the chart - India PE is actually almost 20x. There must have been a mistake/one time event in the data (probably something to do with Reliance as it is huge in index). Also, property revaluations make HK PE look too low. BUT even still, the picture is interesting as US has lowest stock growth (ex CHina), among the lowest PE contractions and the among the highest PEs. Foreigners are growing much faster. The buy big US MNCs strategy does not seem to be working.

[galatime]

I agree with Jon - the P/E ratio for India's Sensex does not look right. With the drop from 12,600 to 10,300 now, the P/E ratio is about 15. Please check.

Cheers.

[The Assetman]

BDG123 is right on the mark. But, the P/E contraction thing is even more global in nature. Perhaps it's indicative that markets are slowly beginning to catch on that global interest rate movements will eventually have their intended effect. This is a classic maturing economic stage on a very global scale. The maturing process could last for years, though...

-- The Assetman

[Terry Osborn]

Is there anyway to get an update on Global P/E ratios?
I think this chart is fantastic and extremely insightful.

Thank you,

T.O.

[Bost]

BDG your argument is correct except that you may have overlooked the fundemental of earnings growth rates.VLO has a earning growth rate of over 20 %.That with a P/E of 7 makes it attractive.Also, with increasing energy demand globally and no major investment in the Oil infastructure do you really see energy prices collapsing? Also Russia knows how to use the energy trump card in Europe as bargining power. nukes and oil are helping Russia reemerge on the global stage

[Bobby Casey]

where can you find the current P/E data for different market indexes?

[Fred]

I don't trust Birinyi Associates data. Because of their constant bullish stance - they completey missed the financial meltdown of 2007-8-9 - they regularly use non-historically relevant data to make their case to shill the market.

[Fred]

What most did not see, of course, was that these earnings were fake, put into the global economy by the housing bubble and deficit spending by governments and the private sector. Even now in 2010 we have yet to fully deflate these bubbles or to deal with reality. Expect at least another ten years of below average returns.

[cheap jordans]

Never leave that until tomorrow, which you can do today.

[Fixed Income]

That's very interesting, great graphic. And very creative visual representation. I look forward to incorporate this into my
fixed income security studies.

However, something seem to look incorrect with the chart - India PE is actually almost 25x.
Maybe it's me.

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