Chart Of The Week - Global Equity PE Ratios
This week: emerging market risk vs reward, China macro and markets, frontier market equities, EM debt, global equity technicals...
This email gives you a brief overview of what was covered in the latest Weekly Insights report including of course, the Chart Of The Week. This is the free preview of the Topdown Charts entry-level service on Substack.
Check out the full archives of the Chart Of The Week for more charts.
Chart of the Week - Global Equity PE Ratios
Global Equity Valuations: This chart shows the “blended PE ratio“ across the major chunks of global equities — the blended PE ratio is an average of the trailing PE (price vs last 12-months earnings), the forward PE (price vs consensus forecasts of earnings over the next 12-months), and the PE10 (price vs the rolling average of earnings over the past 10-years).
This version of the PE ratio is designed to try and accentuate the signal vs the distortions that each respective PE ratio can suffer on their own (trailing PE can be distorted by a one-off collapses (or surges) in earnings, forward PE can be distorted by overly optimistic forecasts, PE10 can be distorted in the event of a structural shift in earnings e.g. if the next 10-years of earnings will look very different vs the last 10-years (either up or down)).
But as for the actual takeaways and the “so what??“ in terms of EM Equities relative to Developed/USA (because it’s “all relative”), in price terms: EM is basing around a 20-year low relative to USA, while testing support (the 2015 lows) relative to developed ex-US. We can see the relative setup quite clearly in the valuation picture below with US still expensive vs history and vs the rest of the world, meanwhile EM and developed ex-US aren’t that far apart – perhaps the key distinction would be that EM is higher beta (financials/industrials/resources) + more China sensitive…
Key point: Valuations favor EM equities (and Developed ex-US) (vs USA).
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Topics covered in the latest Weekly Insights Report
Aside from the chart above, we looked at several other charts, and took a bite out of some really important macro/asset allocation issues right now:
Emerging Markets: a look at the key drivers and moving parts on the outlook.
EM ex-China: because more and more people are asking how it looks.
China: why almost every factor is in alignment (in favor) of Chinese stocks.
EM Debt: reasons for optimism in an overlooked asset class.
Frontier Market Equities: an even more overlooked (and undervalued) asset.
Global Equity Technicals: the tenuous setup that says stay careful.
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Callum Thomas
Head of Research and Founder at Topdown Charts
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