Shiller P/E Ratios for Developed Markets
Just a little 30,000 foot perspective here on global valuations. Â The following comes courtesy of Nomura Research. Â It shows the global Shiller P/E ratios. Â Interestingly, the USA is now the expensive market while Europe has become considerably less expensive.
Via Nomura:
“Figure 14 shows the Shiller P/E analysis extended to Europe and global developed markets.
Currently, there is a significant difference between the valuations of US, global and European stock markets. At 16x, the global market is at the third decile (ie. cheap compared with history), whereas Europe at 11.4x is at its cheapest level since the 1980s apart from the immediate post Lehman bankruptcy period.”
Source: Nomura
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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4 Comments
This was an interesting report from Nomura, I’m not clever enough to post it here, but figure 5 (backtest of valuation measures) from the same report was interesting as well.
Shiller P/E had an r^2 of only 5%, 22%, and 46% over a 1yr, 5yr, and 10yr period, respectively. I also thought it was interesting that Price/Book was basically just as use[ful/less] as the various P/E measures.
I wish this chart went out longer, as it appears that Euro equities trade at a discount relative to US equities and global equities. Thus, while the US CAPE of around 12 in early 2009 turned out to be a good entry point for US equities, it could be inferred that a lower valuation level would be the good entry point for Euro equities. Further, Euro equities at the start of the last secular bull market had a starting point around 7 so further compression is certainly not out of the question.
World CAPE’s
http://www.mebanefaber.com/2012/07/09/global-stock-value-model/
Via Faber’s site
http://www.mebanefaber.com/2012/07/09/global-stock-value-model/
http://www.mebanefaber.com/2012/07/24/value-matters/
This stuff is above my pay grade, and in todays world may not be useful as I think Cullen has said before that Shiller CAPE valuations are not that helpful. You have to wait a long time to act if this is a buy signal but Europe is certainly moving into the single digit area that could produce long term results!!
If I use Yardeni’s old Fed model, the difference between Europe and US is probably just the difference in GDP-weighted 10y rates. Of course, both could still be overvalued!