P/E10's for International Markets

Research on Safe Withdrawal Rates

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Delawaredave
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P/E10's for International Markets

Post by Delawaredave » Tue Dec 28, 2004 1:24 pm

I'm trying to better understand International market valuations versus USA.

Does anyone know where "equivalent" P/E10's (or regular current PE's) exist for various International markets ?

I thought I read somewhere recently that:
- Asian market PEs's are now averaging 11
- Europe market is now 13
- Japan is now 15
- USA is now 18+

I don't know if above are correct and/or if they can be meaningfully compared. I'm sure there's accounting differences, etc.

But.... if:
- the valuations above are substantially lower, and
- given the dollar will probably only get weaker, and
- given many International economies have higher growth rates, and
- these markets might have low correlation to US markets
then is a "very healthy dose" of International stocks a good "balancer" to the portfolio ?

Maybe the numbers above are wrong and/or I'm grossly missing additional risks...........

JWR1945
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Post by JWR1945 » Tue Dec 28, 2004 4:56 pm

I don't know if above are correct and/or if they can be meaningfully compared. I'm sure there's accounting differences, etc.

Comparisons are likely to be better than you think. For example, during the Japanese bubble, some news commentators referred to the sky high valuations (standard P/E ratios) as an accounting artifact. Now that the bubble is over, they no longer look like accounting artifacts. They look realistic.

But.... if:
- the valuations above are substantially lower, and
- given the dollar will probably only get weaker, and
- given many International economies have higher growth rates, and
- these markets might have low correlation to US markets
then is a "very healthy dose" of International stocks a good "balancer" to the portfolio ?

Lower valuations are important. Lower valuations are key to the classic value strategies. The issues are the extent to which they are deserved and how accurately prices are determined.

Value strategies work because people overreact and underreact. The danger here is that decisions to invest into other nations may be dominated too much by the US outlook instead of the prospects of the international corporations. Remember that some markets can be overwhelmed with new money, especially emerging markets. In such cases, prices are determined by liquidity, not corporate prospects.

Currencies can behave in strange ways, particularly in the short-term. For example, Japan has been buying dollars in order to keep their prices low within the United States. [They do not have enough internal consumption to support their industries.] This can't go on forever. But it has gone on for a very long time.

Certainly, there are emerging market with very high growth rates. But their stock markets may be overwhelmed by liquidity effects.

Correlations may or may not work well. In recent years, almost everything has been tied to the US consumer. Without a healthy economy in the United States, many foreign companies would have had a very hard time selling their products. [This is the internal consumption problem. It is not unique to Japan.]

This is the kind of thing that can cause everything to be tightly correlated: everyone depends on the same customer, the US consumer.

Maybe the numbers above are wrong and/or I'm grossly missing additional risks...........

You are probably right. There probably are excellent opportunities in international investments relative US investments, especially now.

You are probably "wrong" in exactly the sense that you have identified. There are risks. But what are they? Where are they? I know that I am vulnerable to being blindsided by foreign investment surprises.

There is also a matter of fees. Is somebody else going to siphon off your profits?

Have fun.

John R.

hocus2004
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Post by hocus2004 » Wed Dec 29, 2004 2:23 am

You might find something helpful in the "Out of Sample (Non-US)" thread, DelawareDave. It does not provide complete and direct answers to your questions. But there are some points made in it and some links provided in it that at least provide clues as to how to struggle with the issues you are raising here.

Here's a link:

http://nofeeboards.com/boards/viewtopic.php?t=3125

Mike
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Post by Mike » Wed Dec 29, 2004 9:05 am

Maybe the numbers above are wrong and/or I'm grossly missing additional risks...

Sir John Templeton, who made a career of investing in under valued international assets, recently stated that for the first time ever he can find no good values any where in the world. Seeking value has become very popular lately, which has made value very scarce.

Delawaredave
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Post by Delawaredave » Wed Dec 29, 2004 1:10 pm

Thanks for above.

Almost as if the world "has more capital than it needs" and that many/all worldwide asset classes are full/over valued.

US stocks obviously are no value. International maybe also. Bonds same. Real Estate same.

So where's the value investor to go in this world ?

Maybe "value is always tough to find" - but it seems especially dear to me now......

Mike
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Post by Mike » Wed Dec 29, 2004 9:52 pm

With regard to equity mutual funds, Sir John recommends the value investor just play it safe for now, and wait. Trends change. There may be untapped areas such as micro caps, but it is difficult to invest here via mutual funds. You almost have to be able to pick your own micro cap stocks, or hire a competent money manager to pick them for you.

With respect to equity mutual funds, since there is so little value, I switched mostly to momentum investing for the time being.

JWR1945
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Post by JWR1945 » Fri Dec 31, 2004 4:13 pm

I hope that I am not misapplying John Bogle's advice too much when I say: Hurry up and do nothing.

Have fun.

John R.

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ElSupremo
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Post by ElSupremo » Sat Jan 01, 2005 7:58 am

Greetings John :)

I hope that I am not misapplying John Bogle's advice too much when I say: Hurry up and do nothing.

That's always good advice IMO. :great:

Happy New Year! cheers!
"The best things in life are FREE!"

www.nofeeboards.com

JWR1945
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Post by JWR1945 » Sat Jan 01, 2005 5:07 pm

El Supremo wrote:Greetings John :)

I hope that I am not misapplying John Bogle's advice too much when I say: Hurry up and do nothing.

That's always good advice IMO. :great:

Happy New Year! cheers!

Always remember to use judgment.

We produce lots of numbers, but we should never use them without thinking. Never use them in isolation.

For example, switching allocations can be expensive. Does it make sense? How about rebalancing? Does it always make sense? As another example, very few people invest only in the S&P500 and commercial paper (or TIPS) but nothing else. Shouldn't you make special adjustments based on your other holdings?

There are times when you need to act fast or let an opportunity slip away. They are rare. More likely, they are splendid opportunities to say good by to vast quantities of your money.

Have fun.

John R.

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Post by peteyperson » Mon Jan 31, 2005 12:24 pm

JWR1945 wrote:In recent years, almost everything has been tied to the US consumer. Without a healthy economy in the United States, many foreign companies would have had a very hard time selling their products. [This is the internal consumption problem. It is not unique to Japan.]

This is the kind of thing that can cause everything to be tightly correlated: everyone depends on the same customer, the US consumer.
John R.

Here in the UK, the FTSE All-Share Index (80% LcB, 15% McB, 5% ScB) is dominated by just ten companies. The average FTSE All-Share business has 43% of int'l sales - a good chunk of these will be via our considerable trade links to the States. The FTSE Fledgling Index ($100m market cap and smaller listed companies) have just 23% in foreign sales. So I disagree that almost everything internationally is tied to the US consumer. It can be, but one can select around that. I have almost no plans for direct US dollar asset investments other than those that still offer a meaningful return after accounting for an estimated fall in value due to further dollar declines. I will not completely ignore quality US assets available for investment, but nor will I ignore risk to capital that come from dollar declines caused by reckless borrowing which continues unabated. :oops: :P

Petey

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