The table below lists the historical and current CAPE Ratios of the largest economies in the world. Among the largest countries, Russia currently has the lowest Shiller PE ratio. However, the CAPE ratios of different nations should not be directly compared to each other. The best way to evaluate if a country’s stock market might be undervalued or overvalued is to compare the nation’s current ratio to its historical average.
To examine historical data on a monthly level, check the Global Valuations Database by Siblis Research.
Global CAPE Ratios by Country
To examine the global CAPE ratios for the past 20 years, purchase the Global Valuations Database by Siblis Research that provides Shiller PE ratios of 18 nations, including Total Market Cap to GNI ratios of 28 countries. Check a sample dataset from here.
Using CAPE Ratio to estimate global stock market valuations
The idea behind the CAPE ratio is that company earnings tend to be volatile and cyclical fluctuations have a huge impact on the traditional P/E ratio. Instead of using annual earnings, CAPE ratio uses the average (inflation-adjusted) earnings of the last 10 years to smoothen out any regular cyclical variations.
Professor Shiller popularized the ratio when he demonstrated the clear historical relationship between the ratio and market returns when calculated for S&P 500 index. Multiple studies have shown that Shiller PE can be successfully applied also for global markets.
For additional information about using CAPE on a global scale, check the writings by Meb Faber. Mr. Faber’s blog covers practically everything you need to know about the ratio.
Global Valuations in 2017
Based solely on the CAPE ratio, the most expensive stock markets (among the 16 largest economies measured by GDP) can be found from US, Japan and Mexico. The most undervalued nations are Russia, UK and South Korea.
The CAPE of S&P 500 is currently (6/19/2017) 29.81, making US stock market the most expensive from all the large nations. The Japanese stock market is trading at the same level but when we look at the historical averages of both nations, the gap between them is vast: the average Shiller PE of S&P 500 is 16.7 but Japan’s corresponding figure is over 40. This might suggest that instead of being overvalued, Japanese stocks are in fact cheap.
Before the financial crisis, the Shiller PE of Russian equity market was over twenty but has been close to only five since 2009. A ratio this low would suggest that Russian companies are trading at a bargain but investors have stayed skeptical about Russia. In June 2017, Moscow’s MICEX index is down 25% since the beginning of the year.