Cape ratio did well last year

The Cape ratio is one of MoneyWeek's favourite valuation metrics. Matthew Partridge explains how it works, and why it's done so well this year.

823-Peru-1200

Peru looked good in 2015: it returned 57.9%
(Image credit: Bartosz Hadyniak)

The cyclically-adjusted price/earnings ratio (Cape) is one of our favourite valuation tools here at MoneyWeek, particularly when considering which individual countries might prove to be rewarding investments. In short, numerous studies have shown that future stockmarket returns tend to be higher if you invest when Cape ratios are low (ie, a market is cheap), than if you buy at a high Cape (when the markets is expensive). Most of the work on Cape has been done in the US, but more recent data suggest that the relationship holds true for global markets too. So how did Cape perform this year, and which markets look cheap for 2017?

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Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri