Are there any bargains left in the world’s equity markets? Or has the bull market of the last few years dispensed with such alluring concepts as relative value?
Easy to ask, tough to answer. Beauty, as always, is in the eye of the beholder when it comes to putting a fair value on stocks. The challenge is even tougher when you consider that valuing securities isn’t an end unto itself, but a means of divining the future path of stocks.
The assumption by many is that low valuations equals above average returns going forward. There is, in fact, quite a bit of truth to that notion, albeit one that can be risky when dissecting individual companies. Relative valuation offers a bit more comfort when comparing equity markets among the planet’s various regions. Regional equity markets, after all, don’t go out of business or get sideswiped by the ill-advised actions of a rogue CFO.
With that in mind, we dive into the performance statistics from the S&P/Citigroup Global Equity Indices, with the results listed in the table immediately below. With the usual caveats lurking, we nevertheless turn up a few intriguing profiles of what’s going on in equity markets around the world. But first, let’s go to the horse race, looking at total returns so far this year, through July 12, 2006 (see the table below).

Leading the pack year to date are European Emerging Markets, which have climbed more than 25% this year (all returns are total returns, calculated in dollars, as per the S&P/Citigroup index series). But even that impressive run pales in comparison to some of the individual markets in Eastern Europe. Slovenia’s equity market, for example, has climbed by more than 40% this year through yesterday’s close. Does that mean there’s a Slovenia ETF in Wall Street’s IPO future?
At the opposite end of the regional horse race is the Mid-east and Africa, which has shed nearly 3% so far in 2006. The United States, according to the S&P/Citigroup series, is also near the bottom compared with the major regions of the world, weighing with a relatively thin 1.94% advance.
Returns are fun to look at, but they don’t tell you much about valuation. For enhanced insight in that corner we consider the major regions of the world on four fundamental metrics (see tables below), all of which are calculated as of June 30, 2006, as per the S&P/Citigroup indices. Among the trends that stand out:
* Latin America looks compelling next to its global counterparts. Based on price-to-earnings ratio and return on equity, the region tops our list for offering the best value.
* For dividend yield, Asia Pacific excluding Japan leads the way, weighing in at 3.26%. The U.S., by comparison, is at the bottom, courtesy of its paltry 1.79% yield.
* On a price-to-cashflow basis, emerging markets still rank as the best value among the major regions. Of course, the various risks that emerging markets harbor no doubt accounts for the relatively low pricing. Meanwhile, the U.S. is the most highly valued market place by way of P/CF ratio.