Admin

Countries Which Are Overvalued or Undervalued

Ask 10 different money managers what metric they use to determine if a stock (or particular market) is overvalued, and you'll more than likely receive 10 different responses.  Of course buying at "the bottom" is easier said than done, as we all know so I submit to you this perspective.

Kyle Caldwell, personal finance reporter at the Daily Telegraph, determined whether stock markets were undervalued or overvalued. Caldwell used three measures: price to earnings (P/E), cyclically adjusted price to earnings ratio (CAPE) and price to book (P/B). His analysis included 34 countries, both developed and emerging and compared current measures to historical averages.

The CAPE adjusts for cyclical variations and takes a longer term view than the P/E considering the earnings average over the last 10 years instead of the 12 month average. Its premise is that eventually earnings will move back to their long term trend. Price to book divides the current value per share over the equity value shown in the company’s balance sheet. The latter includes the value of buildings, intangible assets and other assets if they were to be liquidated. Price to book helps analysts adjust for any distortion caused by companies overstating earnings.

Some of these countries are undervalued because of political or financial unrest including Turkey, Russia and Greece.

Does that make them a bad investment here?  You be the judge.  Beauty is in the eye of the beholder and "cheap" depends on your appetite for downside risk (or if you're dollar cost averaging).

By all three measures, the U.S. is expensive. This is likely due to indices such as the Dow Jones Industrials and the S&P 500 reaching record highs and consistent performance after the 2008 financial crisis. Josh Wright, Bloomberg economist and Brian Barnier, strategist at ValueAdvisors, LLC agrees in a Bloomberg Briefs report, that the current CAPE level of 26.2 is high relative to its long term median and its long term average. While it is still below peak levels reached during the 2000 dotcom bubble, it is concerning.

E-mail me when people leave their comments –

You need to be a member of StockBuz to add comments!

Join StockBuz

We welcome you to post a blog entry, oped or share your daily reading with us as long as it is relevant to the topic of investing and not an attempt to sell a product, proprietary strategy, platform or other service. Please provide links to any research data and if re-posting other articles, give credit where credit is due providing a back link to the original site.

300 words minimum per post. You may also sort by category or search by topic. Don't forget to comment and please "share" via Facebook, Twitter and Google+. If you have any questions, please contact us.

FOLLOW STOCKBUZ

__________________

This is a member-supported site. Please donate when you can to help pay the rent. Thank you!

Stay Informed. Sign up for the FREE StockBuz eNewsletter

________________

Investing involves substantial risk. All content is subject to StockBuz disclaimer.

Create Income With Option Spreads

All content on StockBuz.net is subject to disclaimer and Terms of Service