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P/E Ratio Global Stock Markets Analysis and Technical Outlook - Nov 07

Stock-Markets / Stock Market Valuations Nov 18, 2007 - 10:30 PM GMT

By: Nadeem_Walayat

Stock-Markets Best Financial Markets Analysis ArticleThe Price / Earnings Ratio has long been recognized as one of the most useful financial indicators for valuing both individual stocks and stock markets. However as with individual stocks, it can be misleading if not also taking into account growth prospects for a particular economy. One of the primary indicators of growth is a countries real GDP, and as with an individual stock analysis, it is the consistency of trend that is important so as to avoid one year growth spurts.


Therefore the following table evaluates current country main indices P/E Ratios against GDP growth trends for 2008, as an indicator of prospects for future stock price appreciation in terms of relative valuations.

Analysis suggests the following fundamental picture based on earnings and trend adjusted growth for 2008.

Cheap markets
Turkey, South Korea, Russia, India

Fair Priced
Hong Kong, Canada, Australia, and Brazil

Expensive Markets
China, US, Europe

Basket Case
Japan

Conclusion :
If you don't have any or very little exposure to Turkey, South Korea, Russia and India then you should seriously think about adjusting your portfolios in their favour.

Hong Kong, Canada, Australia, and Brazil are good long-term prospects, but they are not cheap, therefore a reaction or correction would present a buying opportunity there.

China, UK, USA. Suggests being underweight in domestic stocks. China, this market is not cheap, I pulled out of this months ago and await a serious pull back before contemplating re-entering, were talking 30%+ Though there are plenty of better opportunities even after a pull back of 30%.

I just cannot fathom why so many people are obsessed with piling into Japan ?

Immediate Term Technical Outlook

My technical take for a month now has been for Western stock markets to outperform the asian stock markets, to decouple so to speak.( 21 Oct 2007) , ( 04 Nov 2007 ), ( 12 Nov 2007) This is being borne out by actual price movements. I.e. This week US stocks closed marginally higher with the S&P up 0.35%. Whilst China and Hong Kong stocks fell, with the Hang Seng down 4% and the Shanghai Index down 1%. I anticipate this trend to continue into the New Year, as the Western markets are still gearing up towards a strong end of year rally.

Banking Sector

Having watched the banking sector crash towards multi-year lows, I am now finally contemplating entering the market to pick up some cheap bank stocks for the long-run. My reasoning is mostly technical, but also supported by the assumption that the financial and banking stocks world over have lost trillions in market capitalization. That's against a worst case scenario of some $400 billions of bad debt losses over 2 years, as against $45 billion of actually reported bad debt provisions to date. Check by the Market Oracle site for an article to be published Monday morning - Banking Stocks - Is It Time To Buy?

Yours, thinking about adding to Indian and Turkish stocks for the long-run on Monday, (since I am already fully loaded with Russia and South Korea), and feeling the urge to buy certain banks.

By Nadeem Walayat
Copyright (c) 2005-07
Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of analysing and trading the financial markets and is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 100 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Dave Kolb
21 Nov 07, 02:20
Global STOCK MARKET VALUATIONS

I do not understand your above chart.

You say India is a good deal yet its PE is almost as high as Japan which you say is bad yet Japan has a lot higher GDP growth.

Can you please explain?

Thanks,

Dave


Nadeem Walayat
21 Nov 07, 02:21
Country Ranking of Global Stock Markets

Hi Dave

The Red Bars are the COUNTRY RANKING - Which is the PE adjusted for GDP growth trend.

Indias GDP is far, far higher than Japans.

Regards.

Nadeem Walayat,


Rajan Bade
31 Dec 07, 09:18
P/E analysis

Dear Nadeem,

Really this is a fantastic analysis. Thanks for this wonderful article. Can you include concept or calulation of adjusting P/E for GDP growth trend so that we can understand the thing in deep.

Regards,

Rajan Bade


pitt
06 Jan 08, 12:19
average p/e

Hi,

great analysis !

where can I find p/e averages for certain indices ?

(say, the Malaysian KLSE..)

Thanks

Pitt


rajendra jain
03 Sep 08, 12:07
what similarity between china and india in gdp rate ?

actually you are not able to explain whole thing... its little bit complicated.. can u explain your chart properly and explain it deeply ??

thanks

regards

Rajendra Jain


raj
22 Jan 11, 13:52
Global stock markets update

Hi Nadeem,

Could we have an update on this article to see what the markets look like now?

Thanks

Raj


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