The world is a big place, but there’s a fair amount of uniformity when it comes to equity returns in 2006. Bull markets are everywhere. They vary in degree, of course. But from a regional perspective, at least, black ink ruled this year through October 31.
Fundamental valuation is another matter. There’s a bit more disparity when it comes to the usual array of valuation metrics. Let’s dive in and take a look, using data supplied by S&P/Citigroup Global Equity Indices through October 31, 2006.
Starting with total returns, European Emerging markets continue to lead the pack with a 36% total return (this and all returns quoted are dollar based). Even the worst performing region–Mid-East and Africa–is up 5.8%. A bullish tailwind, in other words, can be found in almost every corner of the globe’s stock markets, and so investors have had to work hard to lose money this year. Indeed, the World index has climbed 16.3% through last month. Meanwhile, U.S. stocks–although near the bottom of horse race in 2006 on a global basis–have advanced 12.3%, which is above-average on an historical basis.
The global equity profile becomes more complicated once we start looking at valuation. Latin America is the least expensive on a trailing 12-month price-earnings ratio basis. Trading at slightly above 12-times earnings, Latin America offers the best investor-friendly pricing by this measure when compared to everything else. U.S. stocks represent the highest-priced market by this definition in our survey, trading at nearly 18 times earnings.

The p/e ranking holds up when we look at equity markets on a price-to-cashflow basis too. Once again, Latin America is the least expensive. The United States has the second-highest p/cf measure after European Emerging.
Dissecting markets by return on equity alters the ranking a bit, with the Mid-East and Africa scoring highest on ROE. The U.S., however, remains near the bottom.
For investors looking for relatively high dividends, Europe offers the most enticing prospects at nearly 3.1%. The U.S., by contrast, pales with a spare 1.5% dividend yield.
No matter how you slice it, compelling buys based on deep value are scarce at the moment. Mr. Market will no doubt correct that at some point, giving cash-laden investors the first crack at the best opportunities. Volatility, like MacArthur, promises to return… eventually. Meanwhile, the best one can hope for are the mixed opportunities born of relative value. Unimpressive, perhaps, but then again beggars can’t be choosy. That is, unless you’re willing to sit on fairly large amounts of cash and wait for a better deal in the form of absolute value.


  1. Jim Picerno

    From the main page (, click Index Returns at the top, and then Fundamental.

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