World Equity Indexes – Opportunity Analysis August 2018

In the subject of stock selection, there is indeed a lot of "noise" - facts & factoids, TV channels and talking heads spewing out all kinds of "information", which are patently useless, even dangerous to wise investing decision making. We are here to reduce that clutter and help you zero-in on the stats that matter. Luckily, one can make a very smart choice - low risk and high potential return - by looking at just a handful of them. Our aim as investors is to simply place the odds in our favor.

We like to look that major global stock market indexes first - starting with developed nations because the numbers reported are more reliable - before we go into individual stock selection. This is because index valuations - price to earnings, price to book, debt levels, revenue growth, return on equity, return on assets, profit margins, etc. - give us a broad picture of what is going in the world of financial opportunities today. They represent the global markets at large.

The question that we want to have answers to are:

Are the markets expensive or cheap:

  • based on historic levels?
  • based on their own intrinsic valuations?
  • compared to those of other countries?

If the market is cheap, we can be more confident in allocating a bigger percentage of our asset portfolio to it, and viceversa. The beauty of investing in an index (through a low-cost tracking fund) is that we get the benefit of convinient and cheap diversification with access to blue-chips i.e. large, strong companies with a track record behind them.

Here are 12 top benchmarks and their P/E and dividend yields. P/E is current price to earnings (times). Dividend yield is last 12 months of dividends as a percentage of current market price.

Dow Jones Industrial Average (USA)

  1. Value: 25313
  2. P/E: 18
  3. P/E before extraordinary items: 22.4x
  4. Div Yield: 2.16
  5. ROE: 18%
  6. P/B: 4x
  7. Profit margin: 9%
  8. Current ratio: 1.25
  9. Total debt to total equity: 207%
  10. Index enterprise value: 28650

S&P 500 (USA)

  1. Value: 2833
  2. P/E: 20.6
  3. Div Yield: 1.84
  4. P/E before extraordinary items: 23x
  5. ROE: 14.9
  6. Price to book value: 3.4x
  7. Profit margin: 9.7%
  8. Current ratio: 1.37
  9. Total debt to total equity: 112%
  10. Index enterprise value: 3269

Nasdaq Composite (USA)

  1. Value: 7839
  2. P/E: 54
  3. Div Yield: 0.98
  4. P/E before extraordinary items: 25x
  5. ROE: 12.7%
  6. P/B: 4.7x
  7. Profit margin: 8%
  8. Current ratio: 1.71
  9. Total debt to total equity: 84.8%
  10. Index enterprise value: 8850

S&P TSX Composite (Canada)

  1. Value: 16326
  2. P/E: 18
  3. Div Yield: 2.81
  4. P/E before extraordinary items: 18.8%
  5. Return on Assets: 1.29%
  6. Return on Equity: 10.0%
  7. Price to Book Value: 1.83%
  8. Profit margin: 9.4%
  9. Current ratio: 1.18
  10. Total debt to total equity: 105.5%
  11. Index enterprise value: 26370

FTSE 100 (UK)

  1. Value: 7622
  2. P/E: 17
  3. Div Yield: 4.15 (high is good for investors!)
  4. P/E before extraordinary items: 13.2x
  5. Return on Assets: 1.74%
  6. Return on Equity: 15.35%
  7. Price to Book Value: 1.85x
  8. Profit margin: 9.6%
  9. Current ratio: 1.03
  10. Total debt to total equity: 120%
  11. Index enterprise value: 9311

CAC 40 (France)

  1. Value: 5400
  2. P/E: 16.34
  3. Div Yield: 3.18
  4. P/E before extraordinary items: 16.6x
  5. Return on Assets: 1.25%
  6. Return on Equity: 10.4%
  7. Price to Book Value: 1.65%
  8. Profit margin: 7.1%
  9. Current ratio: 1.13
  10. Total debt to total equity: 193% (very high!)
  11. Index enterprise value: 6390

Nikkei 225 (Japan)

  1. Value: 21857
  2. P/E: 15.8
  3. Div Yield: 1.84
  4. P/E before extraordinary items: 16x
  5. Return on Assets: 3.5%
  6. Return on Equity: 11.1%
  7. Price to Book Value: 1.75%
  8. Profit margin: 6.66%
  9. Current ratio: 1.49
  10. Total debt to total equity: 70.4%
  11. Index enterprise value: 26050

Dax (Germany)

  1. Value: 12347
  2. P/E: 14
  3. Div Yield: 3.14
  4. P/E before extraordinary items: 14.4x
  5. Return on Assets: 1.6%
  6. Return on Equity: 12.5%
  7. Price to Book Value: 1.7x
  8. Profit margin: 6.9%
  9. Current ratio: 1.15
  10. Total debt to total equity: 138%
  11. Index enterprise value: 14850

Hang Seng (Hong Kong)

  1. Value: 27936
  2. P/E: 10.9 (very low, very cheap, hence very good for buyers!)
  3. Div Yield: 3.89
  4. P/E before extraordinary items: 10.5%
  5. Return on Assets: 1.62%
  6. Return on Equity: 11.9%
  7. Price to Book Value: 1.25x
  8. Profit margin: 18.3% (very high! this is good)
  9. Current ratio: 1.26
  10. Total debt to total equity: 108%
  11. Index enterprise value: 33572

S&P ASX 200 (Australia)

  1. Value: 6252
  2. P/E: 18.49
  3. Div Yield: 4.08
  4. P/E before extraordinary items: 18.15x
  5. Return on Assets: 1.7%
  6. Return on Equity: 11.3%
  7. Price to Book Value: 2.13x
  8. Profit margin: 12.3%
  9. Current ratio: 1.18
  10. Total debt to total equity: 158%
  11. Index enterprise value: 7900

STI (Singapore)

  1. Value: 3245
  2. P/E: 11.42
  3. Div Yield: 4.24
  4. P/B: 1.12x
  5. ROE: 9.99%
  6. ROA: 1.82%
  7. Profit margin: 16.16%
  8. P/E before extraordinary items: 11.3%
  9. Current ratio: 1.27
  10. Total debt to total equity: 59%
  11. Index enterprise value: 5955

Kospi (South Korea)

Value: 2248

P/E: 10.75

Div Yield: 2

 

Inference:

From the above, we can tell that Singapore and Hong Kong have much lower valuations than the Nasdaq. Also, the 30 Dow Jones index companies have a slighly lower valuation than the rest of those in the S&P 500.

 

Disclaimer: This is not specific investment advice or recommendations. Though every effort has been made to make this information accurate, please recheck the numbers above through your own sources, they may or may not have been inadvertently misquoted. Please acquire written consent from your qualified financial advisor before making any investment decision. This website is not liable for any gains or losses an investor makes in the short- or long-term.

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