Stocktake: Are global equity valuations getting lofty?

Most markets trading at forward price/ earnings ratios ‘not seen since late 1990s’

The New York Stock Exchange in Manhattan. Photograph: Amr Alfiky/The New York Times

The New York Stock Exchange in Manhattan. Photograph: Amr Alfiky/The New York Times

 

Global stocks are looking increasingly pricey. After rallying almost 40 per cent, the MSCI World Index is now just 9 per cent below February’s all-time highs. Consequently, the median price/earnings ratio of 23 countries tracked by Bespoke Investment Group is now 18.9 – higher than 88 per cent of readings over the past decade.

Relative to history, valuations look especially elevated in Germany; today’s valuation is higher 99.7 per cent of days over the last 10 years. It’s a similar picture in Japan (98.6), the United States (96.8) and Spain (89.8).

Indeed, most equity markets now trade at 24-month forward price/earnings ratios “not seen since the lofty days of the late 1990s”, cautions Peter Oppenheimer of Goldman Sachs.

The good news, however, is that long-term valuations for non-US markets look less challenging if one examines Cape ratios, which average earnings over 10 years to smooth earnings fluctuations. The US market is dominated by the high-margin technology sector, whereas relatively unprofitable financials are more prevalent in non-US markets.

The latter still look a better bet even if one accounts for sector weights. According to TopDownCharts, developed markets outside the US trade on a Cape ratio of 18, compared with 29 in the US.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.