British stocks are now (historically) unusually cheap and Europe is trading at a deep discount to Japan

The ratio of share price to earnings of traded companies (PE) may not be the best valuation metric, but it is certainly the most used. After a while, today we will take a look at how the world’s markets are from this point of view. The extreme here is the UK on one side and the USA on the other. And I am particularly interested in the discount value of Europe, the USA and now Japan.

1. Valuation in the world: In the following table, the great exception is Great Britain, because it is the only stock market where valuations are below the historical standard. And a lot The rest of the market is either about the same (Europe without the GRANOLAS group), or more or less above the standard. Not to mention Japan, which is struggling (something Europe is also trying to do). The exclusive counterpart of the UK are the American markets:

Source: X

2. American extreme what else? The American market is worth high with its valuations even without large technology companies. And that in comparison with the rest of the world and with its own twenty-year history. The risk-free yield of ten-year government bonds in the US is not at all low. Also explained the message in low risk-free lines and/or expected high growth of profit and dividends.

A second column relating to the market without large technology companies could show that investment in the growth potential of AI and spol. (so the potential is not limited to the IT sector and its related companies). However, it should be done early, because the gap between the rest of the US market and Europe is so huge. In addition to low risk premiums and high expected growth in the US, there is one explanation of the high US currency rates in terms of free cash flow to profits:

As I pointed out here, for one dollar of profit, companies in the USA now extract more dollars of cash, they now have relatively low investment spending (not necessarily low investment in the mass market). Investors are thus willing to pay more for these vivnj profits than in the past. Even this factor does not provide a satisfactory explanation for the value of the US non-technology market over Europe (which does not even have a risk-free rate). Of course, we can talk about the potential of the European economy, various industry combinations, the bottom of the cycle, etc. But the value discount of Europe and Japan is also deepening (although the risk-free rate is at zero, but for a long time).

3. The risk is at a minimum: Let’s go back to the USA briefly – I have focused on the development of long-term expected growth of profits in the USA, today I will take a look at the risk premium on the bond markets. They are not the same as stock prices, but you can’t observe them, and even the most informed people can make estimates. We can see on the bonds that the stock is unusually low, but they didn’t get much, then it went down for two, and later turned up.

Source: X

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