With the global equity market correction spreading from Emerging Markets and Europe finally over to America too, it’s tempting to ask (given the move in valuations): are global equities cheap yet? …and which countries are the cheapest? 

In this article we provide an update to the “top 10 PE10” series, providing an insight into global equity valuation trends and a snapshot of relative value across countries.  In particular, we focus on the PE10 valuation metric, which as I explain below is a great tool for assessing value.  

From the original article – The Top 10 PE10 – why look at the PE10:

“The PE10 is a stock market valuation metric which compares the price to the average earnings of the past 10 years. The reason to look at average earnings is that it smooths out the peaks and troughs that result from business cycles. It’s also useful for analyzing countries that typically see greater volatility of earnings e.g. where the index is particularly concentrated. Overall the key point is that it gives a less noisy signal, and from an investing standpoint the biggest challenge is to make the distinction between signal and noise”.

Before we get into it I will note however that valuation is only one factor (in my process I like to look at valuation, economic/earnings cycle, monetary conditions, sentiment/positioning, and technicals).In assessing which markets and asset classes present the best balance of risk vs opportunity it’s important to keep the whole picture in mind like this, and it’s also worth noting that metrics like the PE10 provide the strongest signal over a medium-longer term basis.

1. The Top and Bottom PE10: So here it is again, the top and bottom 10 PE10 valuations across countries (this is the top/bottom of the 47 countries we track – see further down for the full table).The most obvious standout is the USA, with America first in the valuation tables… which of course means it’s the most expensive market on a relative basis. At the other end of the spectrum are a couple of usual suspects, where the phrase “cheap for a reason” may come to mind. Interestingly there is a fairly balanced representation of DM vs EM across the two ends of the valuation spectrum, with the high end featuring some of the typically more expensive and ‘growthier’ emerging markets, and a couple of smaller developed markets.