Many global stockmarkets have hit new all-time peaks this year, including Wall Street, which sets the tone for world markets, the FTSE 100, and the widely watched global gauge, the FTSE All World index. So is there any value left at these unprecedented prices?
One of the best measures of value is the cyclically adjusted price/earnings (Cape) ratio, which smooths out the earnings cycle by averaging out corporate profits over ten years. It can't predict a market's progress over the next few months, but "has proved a great indicator" for returns over the next decade, says John Authers in the Financial Times: the lower the initial Cape, the better the performance.
Meb Faber Research publishes regular updates on Capes, and its latest report suggests the value lies in eastern Europe. Greece's Cape has gone negative because earnings have been so poor over the past ten years. Russia's is positive, but in the mid-single digits, and it is followed by the Czech Republic, Turkey, Brazil, Poland, Singapore, Spain and Israel. Among the most expensive markets are Denmark, Ireland and the US, where the Cape has only been higher in the run up to the 1929 crash and during the dotcom bubble.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The Philippines, Mexico and Switzerland are also historically dear. The cheap markets "are cheap for a reason", says Authers. Few would feel comfortable taking a punt on Greece and Russia respectively ravaged by a downturn equivalent to America's Great Depression and subject to the whims of the Kremlin. "But that very discomfort may be crucial in creating the chance for a long-term profit."
-
What happens if you can’t pay your tax bill, and what is "Time to Pay"?Millions are due to file their tax return this Friday as the self-assessment deadline closes. Though the nightmare is not over until you pay the taxman what you owe - or face a penalty. But what happens if you can't afford to pay HMRC your tax bill, and what is "Time to Pay"?
-
What does Rachel Reeves’s plan for growth mean for UK investors?Rachel Reeves says she is going “further and faster” to kickstart the UK economy, but investors are unlikely to be persuaded
