Global Equity FVMR Snapshot
Fundamentals: Low profitability in Developed markets excluding US
Global markets have a return on equity (ROE) of 13.8% and a 39.6% dividend payout ratio (DPR). Consensus expectation for 2018 is that Emerging markets are going to be slightly less profitable with an ROE of 12.9% versus Developed markets at 14.0%.
However, if we look at Developed markets excluding US, we can see that ROE is only at 11.1%. North America (of which US is the lion share) is, in fact, the only region that has a higher profitability than Emerging markets.
Developed Europe offers the highest DPR above 50%. In Emerging Asia and Japan, companies are only expected to pay out about 30% of earnings as dividends.
Only Latin America among Emerging markets has a dividend payout ratio that is above the global average.
Valuation: Japan trades at a PEG ratio of only 0.5
Since July 2017, the 2018CE* price-to-earnings (PE) of global markets has increased to 15.6x from 15.2x. Emerging markets trade below Developed markets at a PE of 12.4x, this is still the case if we exclude US that has the richest valuation. Taking growth into account and looking at the PEG ratio, Japan seems most attractive at a PEG ratio of 0.5.
Looking at price-to-book (PB), Emerging markets seem to trade well below Developed markets. However, Developed non-US actually trades in line with Emerging markets at 1.6x PB. Taking ROE into account, Emerging markets still appear more attractive than Developed non-US as Emerging markets have higher ROE.
Momentum: Asia has seen the best price performance
For 12.4x PE in Emerging markets, you get 13.5% earnings per share (EPS) growth. While in Developed non-US, you have to pay 14.3x PE to get 8.8% EPS growth.
Europe, independent of if it’s Developed or Emerging, have the worst earnings growth prospects in 2018. However, Emerging Europe trades at a significantly lower PE than Developed Europe.
In terms of the past one year’s price performance, Emerging markets have returned 22.6% versus Developed markets at 12.0%, excluding US and Developed markets only gained 6.6% in the past one year.
On the regional level, Emerging Asia has had the best past one year’s price performance followed by Developed Asia, so overall, Asia has been great. Developed Europe has had the worst past one year’s price performance.
We can also see that the past weeks’ turbulence has resulted in negative price performance across the board in the past two weeks.
Risk: Europe has been least volatile in the past three months
Finally, we can see that the gearing measured as net debt-to-equity is lower in Emerging markets. It’s mainly North America and Developed Europe that have high gearing as Japan and Developed Asia have a gearing that is actually slightly below Emerging markets.
If we look at volatility at the Emerging markets’ level versus the Developed markets’ level, Emerging markets have been above Developed markets over the past three months and past one year. Developed Europe has been the least volatile market in the past three months, followed by Emerging Europe.
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