CAP Valuation Updates

This time with headings for the tables…

I was reading a nice research piece by the folks at Star Capital, a German hedge fund, on the CAPE ratio.  (Star and Research Affiliates are the only two other shops that publish CAPE that I know of publicly.)

The head of research, Norbert Keimling,  mentioned that for small countries the broader MSCI Investable Market Indices are more representative than the MSCI Standard Indices, since the Standard Indices often have too few, and variable, constituents.  (Link to piece here, and longer research piece here.)  This had a fairly large effect on four countries, Austria, Greece, Ireland, and Portugal.  The rest of the countries were minor differences below a 15% change with most countries having virtually no change.

Being a quant I of course had to go test this myself, so below we have the MSCI Standard as well as the MSCI Investable CAP valuations.  The quick summary – yes, the broader universe does results in altered CAPE ratios for a few countries.  However, the conclusion remains the same for broad determinations and rankings on valuation.  Even though Greece goes from a 2.1 to a 15.6! on the CAPE ratio, once you include the three other metrics Greece is still the third cheapest country after Russia and Portugal.  As you can see in the tables below, the order is near identical – and this is often why we often say valuation is a blunt tool, and you want to use a number of metrics for a composite.

It turns out that the US is still in the doghouse, landing at the second most expensive stock market in the world!

Regardless, you should always trade and invest in what you are measuring – otherwise there will likely be missed expectations. Below are the updates, with sector valuations at the end.

MSCI Standard Indices

COUNTRY CAPE CAPD CAPCF CAPB Average Rank
Greece 2.10 10.40 1.20 0.30 1.50
Russia 4.90 7.50 3.30 0.70 1.75
Hungary 7.80 10.20 3.90 1.10 4.00
Portugal 8.10 13.10 3.40 1.00 4.50
Brazil 9.20 16.40 5.80 1.30 9.25
Poland 10.40 14.90 4.80 1.40 9.25
Czech Republic 9.90 17.60 5.20 1.50 10.75
Turkey 10.60 13.50 7.70 1.70 11.75
Korea 11.90 16.50 6.90 1.40 12.00
Norway 11.70 14.20 6.40 1.80 12.50
Spain 12.10 15.90 5.90 1.60 12.50
Austria 8.50 29.20 3.40 0.80 13.00
Italy 11.10 22.00 4.10 1.00 13.25
Egypt 12.70 13.50 7.40 2.00 14.25
U.K. 12.00 14.70 7.90 1.90 15.75
New Zealand 15.00 14.40 7.70 1.90 16.00
Ireland 15.90 11.60 11.00 1.80 18.25
France 15.70 19.60 8.70 1.70 20.00
Singapore 13.40 22.10 10.10 1.60 21.25
Germany 17.70 17.80 8.90 2.00 22.50
Australia 15.80 16.60 11.40 2.10 23.25
China 15.40 18.40 10.10 2.40 23.25
Belgium 18.20 14.30 11.60 2.10 24.00
Finland 15.70 22.00 9.40 2.20 24.75
Chile 16.90 28.50 10.00 1.80 26.00
Hong Kong 18.60 18.50 14.10 1.70 26.25
Thailand 16.60 18.80 10.60 2.70 26.75
Netherlands 19.20 14.00 12.40 2.40 27.25
Taiwan 20.30 19.20 9.90 2.20 27.75
Canada 18.80 19.40 10.30 2.30 28.50
Malaysia 17.20 21.70 11.60 2.20 29.50
Colombia 17.70 33.60 14.10 1.70 29.75
Israel 15.80 24.60 11.70 2.10 29.75
Peru 12.80 26.50 11.10 3.00 29.75
Japan 27.30 38.60 10.50 1.90 32.50
Sweden 20.20 20.60 14.60 2.90 34.25
South Africa 21.20 19.00 15.00 3.40 34.75
Switzerland 22.00 19.20 17.00 3.10 35.25
Indonesia 18.50 24.00 12.70 4.30 36.00
Mexico 22.20 23.70 12.00 3.40 36.25
U.S. 23.70 19.50 14.70 3.40 36.50
Philippines 26.50 21.50 16.70 4.00 38.25
Denmark 35.90 25.20 22.40 4.70 41.75

MSCI Investable Market Indices

COUNTRY CAPE CAPD CAPCF CAPB Average Rank

Russia 4.80 27.70 3.20 0.70 4
Portugal 11.00 17.00 4.00 1.20 5
Greece 15.60 6.20 1.60 0.30 5
Czech Republic 10.80 15.30 5.20 1.50 6
Brazil 9.40 20.90 5.90 1.30 6
Italy 12.70 21.70 4.60 1.00 6
Hungary 8.00 30.60 4.00 1.10 7
Poland 10.90 23.10 5.20 1.40 8
Austria 12.20 32.90 5.20 1.00 10
Spain 12.70 20.60 6.30 1.70 10
Egypt 11.90 24.50 7.10 1.60 11
Norway 13.10 30.80 6.90 1.80 15
Turkey 11.20 38.10 7.90 1.70 15
U.K. 12.90 28.70 8.40 2.00 16
Singapore 13.20 29.90 9.80 1.50 16
Chile 15.10 33.90 8.80 1.60 17
New Zealand 17.40 22.10 9.20 2.00 19
Korea 13.30 76.10 7.60 1.40 20
Australia 16.10 22.50 11.20 2.00 20
France 16.70 34.50 9.00 1.80 20
Finland 16.70 26.60 9.50 2.10 20
Peru 12.40 29.90 10.40 2.70 21
Colombia 17.40 32.70 13.10 1.60 24
Taiwan 20.60 31.40 9.90 2.00 25
Israel 16.40 39.90 11.40 2.00 26
Malaysia 17.00 39.00 11.40 2.10 27
Germany 18.60 43.80 9.30 2.10 27
Hong Kong 17.90 41.00 13.60 1.70 28
Thailand 17.20 39.10 10.70 2.60 28
China 16.00 49.20 10.40 2.30 28
Belgium 19.40 37.60 11.60 2.10 29
Canada 19.40 42.10 10.40 2.20 29
Netherlands 18.90 42.90 12.10 2.30 32
Japan 28.30 80.80 10.80 1.80 33
Ireland 24.20 46.00 13.00 2.00 34
Indonesia 19.00 47.30 12.30 3.40 35
Sweden 20.60 43.70 14.60 2.90 36
South Africa 20.60 43.70 14.40 3.20 36
Mexico 21.70 70.10 11.70 3.10 37
Switzerland 22.20 46.50 16.90 3.00 38
Philippines 23.90 67.70 15.20 3.40 40
U.S. 25.40 72.30 15.10 3.40 41
Denmark 38.20 122.50 23.00 4.50 43

Sectors

Discretionary 39.7
Health Care 32.8
IT 28.0
Staples 25.0
Telecom 24.7
Materials 24.7
Industrials 22.6
Utilities 19.6
Financials 16.5
Energy 13.4