PE Ratio today, by Blackfort CIO, Dr. Andreas Bickel


PE Ratio today, by Blackfort CIO, Dr. Andreas Bickel

I was invited to an event hosted by DoubleLine and Barclays where Professor Shiller was attending a panel discussion. What does the Shiller PE tell us about the future return of US equities? Measured by Shiller PE (CAPE) the US is the most expensive equity market with a ratio around 27 followed by New Zealand 25 and Switzerland 23. However, what does this actually mean? The US is expected to return a real return of 3-4% p.a. on average over the next 10 years. In nominal terms that means 2-3% more assuming, the FED manages to keep on average the inflation over 10 years in this range. In total, we can expect 5-8% nominal return on average. The word on average is important. There will not be a straight line up; there will be booms and bear markets. Based on Shiller PE Japan (22.5) and India (22) are expensive while Brazil (15), China (14), Germany (16.5) or Russia (6.5) are offering good value for long-term investors. Nevertheless, Russia was over the last 20 years always looking cheap, but most of the time the valuation did not work in favor of the risk takers due to political risks. Valuation does matter but it can take a very long time until one earns a good return.




Published: 29.01.2019 by Blackfort CIO Dr. Andreas Bickel



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