Global Equity FVMR Snapshot

Fundamentals: Low profitability in Developed markets excluding US

Global markets have a return on equity (ROE) of 13.8% and a 39.6% dividend payout ratio (DPR). Consensus expectation for 2018 is that Emerging markets are going to be slightly less profitable with an ROE of 12.9% versus Developed markets at 14.0%.

However, if we look at Developed markets excluding US, we can see that ROE is only at 11.1%. North America (of which US is the lion share) is, in fact, the only region that has a higher profitability than Emerging markets.

Developed Europe offers the highest DPR above 50%. In Emerging Asia and Japan, companies are only expected to pay out about 30% of earnings as dividends.

Only Latin America among Emerging markets has a dividend payout ratio that is above the global average.

Valuation: Japan trades at a PEG ratio of only 0.5

Since July 2017, the 2018CE* price-to-earnings (PE) of global markets has increased to 15.6x from 15.2x. Emerging markets trade below Developed markets at a PE of 12.4x, this is still the case if we exclude US that has the richest valuation. Taking growth into account and looking at the PEG ratio, Japan seems most attractive at a PEG ratio of 0.5.

Looking at price-to-book (PB), Emerging markets seem to trade well below Developed markets. However, Developed non-US actually trades in line with Emerging markets at 1.6x PB. Taking ROE into account, Emerging markets still appear more attractive than Developed non-US as Emerging markets have higher ROE.

Momentum: Asia has seen the best price performance

For 12.4x PE in Emerging markets, you get 13.5% earnings per share (EPS) growth. While in Developed non-US, you have to pay 14.3x PE to get 8.8% EPS growth.

Europe, independent of if it’s Developed or Emerging, have the worst earnings growth prospects in 2018. However, Emerging Europe trades at a significantly lower PE than Developed Europe.