Global indices comparison highlights S&P and Euro Stoxx 600 value and yield
By Christopher Beauchamp - IG Market Analyst
Date: Thursday 04 Sep 2014
With equity markets rallying once again, some might begin to worry that valuations are getting a little ahead of themselves.
Now might therefore be a good time to take a quick look at how various markets stack up in valuation terms.
For the purposes of the exercise we'll look at the equity indices of major developed economies, with the data shown below:
Name 1yr % return P/E Price/Book Div Yield
S&P 500 24.85 18.05 2.73 1.90%
Euro Stoxx 600 18.4 20.64 1.89 3.67%
Dax 17.83 17.84 1.75 2.77%
Hang Seng 17.57 11.02 1.46 3.57%
S&P/ASX 200 15.33 19.5 2.13 5.73%
CAC 40 15.04 26.75 1.51 3.21%
Nikkei 14.38 20.55 1.6 1.55%
FTSE 100 10.67 17.22 1.99 4.88%
Given that the S&P 500 has posted the strongest return of the set over the past twelve months, it is not surprising to note that it has one of the lowest dividend yields (yields move inversely to prices).
However, at 2.73 times book value the S&P does seem somewhat overvalued compared to the other indices.
Nonetheless, with the US economy still powering ahead there seems to be a justified valuation premium available here.
Turning to the UK, the FTSE 100 is the poorest performer since last September, up just over 10%.
But for income hunters, the chunky 4.88% yield means there is still much to recommend it.
In addition, its 17.22 PE ratio sits nicely towards the middle of the range available, while its book value is comfortably below the extremes of the S&P 500.
Perhaps the index that sends the biggest warning sign is France's CAC 40.
The 15% return over the past year may come as a surprise to those used to the seemingly-unrelenting tide of bad news on the French economy, but increasing optimism regarding the eurozone allowed the French index to make gains.
Still, at over 26 times earnings and ongoing worries about France's budget situation, the CAC 40 looks to be erring on the expensive side of things.
With three different valuation metrics on offer here, investors have plenty of information to make their own decisions based on their preferences.
For myself I tend to think that perhaps a combination of the S&P 500 and the Euro Stoxx 600 offers a suitable combination of yield and reasonable valuation, especially if the ECB steps in later this year to initiate a programme of asset purchases and the US economy continues to record strong growth.
Christopher Beauchamp - IG Market Analyst
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