Global Stock Market Valuations and Expected Future Returns

Updated at Thu, 08 Oct 2015 20:30:08 -0500

Where Are We with Global Market Valuations?

Before we start, we would like to point out that at the left sidebar of this page you can find the implied future returns of the world’s 18 largest stock markets, sorted from the highest return to the lowest for developed markets and emerging markets.

Since we published the market valuation and implied future return based on the percentage of total market cap (TMC) relative to the U.S. GNP, it has served as a good indicator for the overall market valuation of the U.S. stock market. We have also added the Shiller P/E page, which looks at the market valuation from a normalized earnings perspective, and gives similar conclusions on overall market valuations and future market returns.

Those two pages have served the U.S. market very well. However, a lot of users asked us about the international market. Indeed, sometimes investors are better served to invest internationally. The purpose of this page is to provide an overview of the stock market valuations of the 18 largest economies in the world. The indicator we use is still the percentages of the total market caps of these countries over their own GDPs.

As pointed out by Warren Buffett, the percentage of total market cap (TMC) relative to the U.S. GNP is “probably the best single measure of where valuations stand at any given moment.” Unlike the U.S. market, the histories of the data for other countries are not long enough to provide a more accurate projection of future returns. But still we believe that this page can give a good idea on where the market stands currently with overall valuations.

Before we get into the details of how we arrived at our results, these are the implied returns of the stock market worldwide, including both developed markets and emerging markets, as displayed in the left sidebar. This page is updated daily.

Assumptions about Finding out the Implied Future Returns of the Stock Market

We have discussed in great detail how to calculate the future returns of the market for the U.S. market. The principle is the same for the stock market. Three factors contribute to future market returns. These three factors are:

  1. Future business growth: We assume that average future growth will be the same as past growth. This may overestimate growth for fast-growing economies.
  2. Dividends: The average future dividends per year in the next five years will be equal to the average of the last five years. This may underestimate dividend yield as in general, dividends will grow as economies grow.
  3. Change in market valuation: A big assumption here in the market valuation is that the ratio of market cap to GDP will revert to its previous mean during a full market cycle, which will last 7-8 years.

Total investment return is given by:

Investment Return (%) = Dividend Yield (%)+ Business Growth (%)+ Change of Valuation (%)

Data Sources:

  1. Future business growth: Similar to what we did for the U.S. market, we estimate the future business growth using the past GDP growth of these countries. The GDP data we use is either from the reported data of the statistics departments of these countries or data published by the World Bank. For some of these countries, only annual data is available.
  2. Dividends: We use the dividends of the corresponding iShares country ETF to estimate the current dividend yield of the country’s stock market. While the dividends of these ETFs were never consistent, we use the average of the dividends of the ETFs over the last five years to estimate future dividends.
  3. Change in market valuation: As detailed in the U.S. market valuation, we use the Wilshire Total Market index to estimate the total market cap of the U.S. market. However, no similar indexes exist for other countries. Instead we use the most dominant market indexes in those countries as proxies of the total market indexes. We assume that these indices change proportionally with the total market. These indexes are then converted to the total market cap based on the ratios of total market cap over GDP data published by the World Bank.

The details of the indexes we used for different countries are in the page for each country. Click on the country’s name on the left sidebar to check out.

Error Sources:

The sources of errors are from the assumptions:

  1. Future average GDP growth might be different from past growth. This can be especially true for countries of emerging markets that have high growth rates. The slowdown can affect the results dramatically.
  2. We are using GDP data instead of GNP data for the calculations.
  3. In most cases the index we use covers at least 70% of the total market in the country. But the total market may deviate slightly from the index.
  4. The mean of the historical valuation may not be the mean for the future, especially when we do not have enough historical data.

How to interpret the data:

If we have less than 20 years of data, the history of the data is certainly too short for an accurate prediction of future returns. The current ratio of market cap over GDP in this page gives you an idea on where the market stands from historical perspective.

We may not come to an accurate projection for future returns, especially for emerging markets. But we believe that this page can give us a good idea on where we stand for different countries in terms of historical market valuations.

Detailed Data and Discussions:

This page presents the market valuation of the 18 largest economies in the world. The market valuation is measured by the ratio of total market cap to GDP. These are the GDPs in U.S. dollars for these countries. Original GDP data was in each country’s national currency. They are converted into the U.S. dollar using the exchange rate of May 2014.

As listed, the U.S. has the largest economy, followed by China, Japan, Germany, France, etc. The market cap of the U.S. is also the largest, as of May 2014. However, the market caps of other countries do not display as monotone a decline as the GDP, as shown in the chart below:

As the results, the ratio of the total market cap over GDP for the countries from the largest economy to the smallest is shown below:

Putting your mouse over the columns of the chart you will find the exact current total market cap over GDP ratios for each country. We can see that the ratio varies dramatically across different countries. Historically these ratios swing wildly. For instance, the ratio of total market cap over GDP climbed to 355% in 1989, when Japan’s economy was booming and nothing could stop the country of the rising sun. But the ratio sank to as low as 60% in 2003 and 2009, when the country of the rising sun seemed to have plunged into permanent darkness. The chart below is the current ratio of total market cap over GDP and its historical range. It is also listed in the table at the left side of the chart. The data is updated daily.

CountryGDP ($Trillion)Total Market/GDP Ratio (%) Historical Min. (%)Historical Max. (%) Years of DataCountry ETF

Historical minimum and maximum,  and current ratio of total market cap over GDP

As we discussed above, the total returns of the future market come from three factors: GDP growth, dividend yield and change of overall market valuation. Assuming the market valuation will revert to the historical mean, the contributions from each component are listed in the table. The countries are separated into developed market and emerging market. Only the countries that have at least 10 years of data are displayed.

Contributions from GDP Growth

These are the past GDP growth rate of these countries. Apparently developing countries had much faster growth than developed countries. This may over-estimate the future returns of the emerging market.

Contributions from Dividend Yield

The average of the dividend payment of the country ETFs over the last five years was used to estimate the dividend yield. Yield is calculated by dividing the dividend by the current prices of the corresponding ETFs.

Contributions from Valuation Reverse to the Mean

Assuming the market valuation will reverse to the mean over the next 8 years, these are the contribution from mean reversion of the market valuation.

Again, these are the total returns from all the three components for these countries:

We can clearly see that for the emerging market, the contribution from economic growth is much higher than in the developed market. For instance, the average growth for China’s economy is more than 16% a year for the eight-year period before 2012; India’s economy averaged about 15% of growth a year. These high growth rates contributed to the future returns substantially.

But on the other hand, the economic growth of these countries cannot continue at these rates forever. They may slow down drastically in the future. Considering these factors and the shorter history of data, we believe that the implied returns for the emerging market carry much higher uncertainty.

On the other hand, the projection for developed countries should be much more reliable, especially when we have a longer history of data available. The U.S. market valuation page has done a decent job in predicting the future returns of the U.S. market.

Click on the country on the left sidebar to check out the details for each country.


Add Notes, Comments

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User Comments

ReplyCosmosandy - 1 day ago
Gurufocus team, please update the timestamp of different coutries page, only when it actual updates with new data. otherwise the info doesnt help
ReplyOldwell89 - 2 weeks ago
The GDP numbers are based on averages, so any numbers above or below that should be factored in to adjust accordingly. The fact that current GDP does not equal average does not make the data faulty. It does show the volatility in the components without a doubt and as stated as markets become more mature, there is a natural progression towards a lower average (presumably with reduced volatility as well.)
The concept is sound and useful, although I would argue that the ability to update a good bit of economic data daily is not very realistic. It would be more useful to have data updated monthly, quarterly or at whatever interval consistency could be generated across the components. At worst, that would require doing a little math in between the reports and having to wait on updated numbers for accuracy, but would still provide a useful overview of relative valuation.
What value investors place of the data that any of these countries, including China, provides should be factored in by the individual. If you believe that a 15 PE in the US is equivalent to a 12 PE given the same growth metrics in France or a 10 PE in China, then you should build that into your calculation. That shouldn't be the purpose. Now, if someone wanted to overlay data that supported reversion to different means across countries along with historical information on how these ratios tend to progress as countries become more developed and move up the global GDP scale, then maybe that could provide some useful perspective, but trying to factor in subjective traits is a misuse of intent.
Periodic updates are better than skewed data sets, so having the US daily updated is not really providing the best potential benefit unless you separate it out.
ReplyAgroulx - 3 weeks ago
Brazil is not growing at 10.4%.. The time stamp is updated, not the information.
ReplyCosmosandy - 4 weeks ago
looks as if only USA page is updated daily but not of other countries, however the timestamp at the top of page is updated every day for all countries. Now we don't know when was the exact date on which the page was updated for remaining countries.
ReplySilverbear - 1 month ago
This whole thing is based on China's GDP number of $10 trillion. What if this number is wrong? What if it is more like 6 trillion since the stock market valuation in China in 2014 was pointing to a GDP of 6 trillion till the Chinese government decided to 'play' with the market only to see the bubble burst now. Once the Shanghai index settles down at 2,500 or so, the market valuation will indicate a GDP of 6 trillion which I think is the real GDP and not the fake numbers that China touts
ReplyFbknowledge@facebook - 1 month ago
i guess not daily
ReplyCosmosandy - 1 month ago
is this page updated daily now ? if yes, Thank you and great job Gurufocus team.
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ReplyRjmmd - 5 months ago
Why use 15 percent GDP-growth for China, when it is projected (by the IMF) to be 7 percent? Same with many other countries? Thank you.
ReplyRjmmd - 5 months ago
Why use 15 percent GDP for China, when it is projected (by the IMF) to be 7 percent? Same with many other countries? Thank you.
ReplySuperAlpha - 6 months ago
Can you comment on why market value/GDP ratios are so varied, even in the developed Western countries? Seems like it has to be more than valuation?
ReplyMarcheso - 7 months ago
Yes, that would be a great service. Nonetheless I think the TMC/GDP ratio is very helpful as a start to find great individual stocks. If you combined this ratio with the CAPE parameter very promising stocks can be found. Right now if you dig in Italy, Brasil, Russia there are some cool chances...
ReplyCosmosandy - 8 months ago
You are spot on, returns are calculated in national currencies. Gurufocus should use rate of fall of currencies to calculate the returns in USD
ReplyCosmosandy - 8 months ago
No January update on this page till 30th Jan 2015, This month will be marked in history of gurufocus as the month when the most important page on the site was not updated.
ReplyCosmosandy - 8 months ago
Today is 15 Jan 2015, and the page still shows last update of Dec 4th. Can you please update this page ASAP.
ReplyDkgwes - 8 months ago
Interesting analysis.

I am also concerned about the ratio of public to private companies in these countries. Imagine that 100% of the US is public (public companies do dwarf private companies) and that 30% of companies are public in Italy. Italy will *always* appear dramatically undervalued compared to the US, but for an accurate calculation the private sector contribution to GDP needs to be subtracted from Italy. I think that all the country information is inaccurate unless there is data on % of public and private companies. Do you know if this data exists?
ReplyMarcheso - 9 months ago
... the reason to my understanding is: GDP Growth = Real GDP Growth + Inflation. The anualized return potential is calculated in national currencies.
ReplyCB_PACH - 9 months ago
Russia is Gonna Tank now, how come Russia is such high even when OIL tanked, we need to change it. India is growing at 5-6% GDP from past 2-3 years , not anywhere around 14-15%. how is this Data Processed and why the numbers are so high 6% V/s 15%.
ReplyCbossman - 10 months ago
Complete fiction. Methodology gets in the way of reality.
ReplyPablodelbarrioq - 10 months ago
Great information! I used this page since many months ago and it is very useful.
Can you revise the spanish market? There aren't no updates since may... And the dividends yield? The number is "0" for all Markets.
Many thanks!
Kamal nayan
ReplyKamal nayan - 10 months ago
Thanks for the Data. Very Usefull Information.
ReplyBubb_rubb - 10 months ago
On the other hand, I guess you could just enter your own number and see how the result changes?
ReplyBubb_rubb - 10 months ago
Using 10.55% economic growth for Brazil, which appears to be a key input for the expected returns calc here, seems way too high. Growth has been less than 3% for the last three years. See
Would like to see more realistic inputs being used, otherwise the conclusion does not appear to be useful at all.
ReplyNaggie26june@google - 11 months ago
Which is better valuation measure? CAPE or TMC/GNP?
ReplyNaggie26june@google - 11 months ago
Greece, Russia & Hungary are better "value" than China, Brazil & Singapore.
ReplyDelories - 11 months ago
I think, in the case of Germany there was a very special situation that might have greatly affected this ratio during the first 5 years (at least), as the reunification of Germany probably contributed more to the GDP than to the Market Cap of that Index, since lower wage labor was available on the east, and also a smaller part of the overall economy was represented by that Index. If that was the case, of course I can´t assure it is, then Germany might be much cheaper than stated. Please, correct me if I am complete off the mark. :)
ReplyCosmosandy - 1 year ago
Thank you guys for this informative page. Can you please add Hong Kong to the list.
Kamal nayan
ReplyKamal nayan - 1 year ago
Very usefull and informative. For calculating market Cap of Indian Stocks it will be better if you use national Stock Exchange (NSE) instead of BSE as most of the Business in India is done on NSE.
Kamal nayan
ReplyPunchCard - 1 year ago

Spot on mate, I did a 25 year analysis and got a very different "normal". I would say though that the "normal" seems to be trending up, and if you account for this then perhaps Australia will get these returns. I'd prefer to be wary though (particularly as 6-7% GDP growth is very unlikely to continue). It's awesome food for though though, sure beats most other market valuation calls I've seen before...

Carol Nadon
ReplyCarol Nadon - 1 year ago
I also would love if you guys add Schiller PE10 valuations for Russia, Brazil and China stock markets.
ReplyHorgand - 1 year ago
This is great info, I have a 'small' query & request!?

1. In the Total Market Valuation/GDP, would you also post the average ratio value?

e.g. so rather than just seeing the min to max range over the number of years recorded, I think it may be useful to see the current v the mean ratio, so that users can see the current level of over/under valuation of all markets versus their historic norms on a total market valuation/gdp basis.
ReplyBubb_rubb - 1 year ago
Great info! The page says that the data is updated daily, but is that always true? Can you embed a date/time when the page was last updated?
ReplyFacoid737@google - 1 year ago
Friendly hay I work now
ReplyRjack@facebook - 1 year ago
Great information! I know that the page says that the data is updated daily, but is that always true? If not, can you embed a date/time when the page was last updated?
ReplyHorgand - 1 year ago
Top class, well done, keep up the great work!!

p.s. I agree that CAPEs for world markets would also be very useful
ReplyLarswausc@facebook - 1 year ago
thank you i tell that governments
ReplyRadenpatah - 1 year ago
Agree! I also would love if you guys add Schiller PE10 valuations for these global stock markets, especially the emerging markets. BRICS and MINTS. Please!
ReplyRjmmd - 1 year ago
This is great information. Thank you very much. I would love it if you added Schiller P/E Valuations for these global stock markets. Please!
ReplyChaim422 - 1 year ago
I have a similar question as Avenoak. The data that I get from WFE is slightly different than the data listed here. For example, Japan's Total Domestic Market cap on WFE is listed as 438 trillion yen as of October 2013. Here it is a 536 trillion yen at about the same period if I am reading the interactive chart correctly. Why are these numbers different?
ReplyAvenoak - 1 year ago
According the WFE, world federation of exchanges, the TMC for Singapore in November 2013 is 965B in Singapore dollars which would lead to a TMC over GDP of 275%. Are you excluding foreign listings to explain this difference? If not what are you excluding?
ReplyMichaelcharles - 1 year ago
So I ran a regression model on the variables on this page to see if there was some statistical evidence for the idea. I used the SP500 1940 - 2006 as a quick and dirty study. The dependent variable was 8 year implied return since the claim is that a market cycle is about 8 years. So I wanted to see if these variables (GDP growth, Dividend yield and mcap/gdp) could predict returns over a market cycle. The results were trivial. The variables above explain about 3% of the variance in 8 year returns (but at statistically insignificant levels). So, the variables explain very little about returns, but the results were not representative of the sample. So... it's not exactly proof that this strategy is a loser, but it's not encouraging. Perhaps the projected return has to be over multiple cycles. Perhaps the data is too short (and too narrow) to call it robust. But again, not encouraging. If any others do some analysis on this let me know.
ReplyGurufocus - 1 year ago
hi Jmh600,

This method certainly has limitations. But the idea is that over time, the market valuation should reverse to the mean.

We were surprised to see that German MarketCap/GDP was small, too.
ReplyJmh600 - 1 year ago

The percentage of the market that is incorporated and securitized is obviously important for this type of analysis, but it might be much simpler (considering the private companies won't have tradable equity values, and thus one would have to find their earnings/revenues and slap an arbitrary multiple to it, not to mention private companies are those not seeking growth capital so they aren't truly comparable) to do CAPEs for all of the foreign countries as well?

I share the concern of Weltzinbrau mostly because I am amazed that Germany's max market/gdp ratio was 56%. If western countries are this varied, I'm not sure how reliable of a measure of relative value this is. I know Mebane Faber as well as a few banks have done some work on CAPE ratios for country indices, but I imagine it is intensive data-gathering work.

ReplyPhiltcu - 1 year ago

What's the WAF (World Allocation Fund)? Ticker or website address please.


ReplyUVInvestors - 1 year ago
Here are the current weightings for WAF (World Allocation Fund):
China 15.628%
Russia 12.556%
India 8.401%
Singapore 7.904%
Brazil 7.724%
Indonesia 7.588%
Italy 6.052%
Australia 6.007%
Spain 6.007%
Netherlands 4.607%
Korea 2.891%
Sweden 2.846%
France 2.800%
Canada 2.439%
UK 1.852%
Japan 1.671%
Switzerland 1.536%
Mexico 1.491%
ReplyUVInvestors - 1 year ago
Here are the current weightings for WAF (World Allocation Fund):
Russia 12.556%
India 8.401%
Singapore 7.904%
Brazil 7.724%
Indonesia 7.588%
Italy 6.052%
Australia 6.007%
Spain 6.007%
Netherlands 4.607%
Korea 2.891%
Sweden 2.846%
France 2.800%
Canada 2.439%
UK 1.852%
Japan 1.671%
Switzerland 1.536%
Mexico 1.491%

ReplyGurufocus - 1 year ago
Good suggestion Weltzinbrau!

We will see if we can find the data on the ratio of public and private companies.
ReplyWeltzinbrau - 1 year ago
I've just discovered gurufocus and really like the way the information is presented -- great! I do have a question about these global growth predictions; it seems like it would be possible to go a step further and account for factors like % of GDP produced by the private sector, % of private sector that is listed, and GDP growth estimates.

In other words, assuming that the market cap to GDP ratio will revert a historical mean is also assuming that the GDP will grow at roughly the same pace, the public/private sector relationship will stay the same, and the % of companies listed (eligible for market cap) will stay the same. For the US this is probably pretty valid. For other regions, potentially not.

The info is posted is still really useful -- this added detail could just potentially be used to produce a better / more meaningful forecast.
ReplyGurufocus - 2 years ago
hi Newhigh. The page update is now recovered. Sorry about it.

Some past data for 2012 Australia cannot be recovered. But from now on it should update properly.
ReplyNewhigh - 2 years ago
Whoops, the defect is not just in Australian data - I see the same gaps in Chinese and Indian data. Maybe some others too. Can you please tidy this up? Ma Feel free to remove my remarks when its done. Thanks.
ReplyNewhigh - 2 years ago
There's almost 18 months data missing in "Historical Ratio of Total Market Cap over GDP (%)" for Australia. Can someone please make sure informatio is accurate and up-to-date?!
ReplyNewhigh - 2 years ago
Thanks GF for making some good changes to the charts - its now possible to see monthly numbers. Can you please update your Aussie data - there are a few months missing.

Keep up the good work Charlie Tien and the rest of the GF team!
ReplyFA_suitmoney - 2 years ago
Herkshire Bathaway
ReplyHerkshire Bathaway - 2 years ago
Fully agree with you. Resources boom fading out, growth likely to be stagnant with valuations for non defensive stocks to be depressed for the medium term as investors get off the juice. Damn that was some good shit though.
ReplyNwoodman - 2 years ago
That Australia's future growth rate will be 7% is a ballsy forecast to say the least. Past performance on the back of a once in 140 years terms of trade boom, thanks to China, is definitely no indicator of future growth prospects. If anything it will likely have the mother of all reversions to the mean.

However, Ireally appreciate the metrics you guys have put together. The base info such as Market Cap/GDP is really useful
ReplyJmh600 - 2 years ago
I was wondering something about the Expected Returns... and shouldn't they be calculated on more of an absolute basis rather than a relative basis? A lot of the average Market/GDP ratios are heavily skewed to the upside...

Example: At the peak, Japan had a Cyclically Adjusted PE ratio of around 100... that isn't economically sustainable. This would be like if one country had set its interest rates at 50% and another at 2%.

Suggestion: I think there should be a setting that allows you to change which metric you use to compare the valuations of different countries

1. The original, average Market/GDP of specific country vs. current and projected 10 year regression to mean.

2. Current Market/GDP vs average market/GDP of ALL countries. One has to make the judgement call from this point whether Russia deserves to be on the low end, but if we were to see a well developed democracy on the value end of this metric, it would be an interesting opportunity.

This seems to me to be highly advisable due to the fact that the data sets for these countries are so short term.

3. Simply rank on current Market/GDP
ReplyGreyowlsova@google - 2 years ago
I like your approach to use "intrinsic value" calculation for foreign stockmarkets, but IMHO, there is a flaw: they are exaggerated by inflation in developing countries. Better use Real GDP growth. Otherwise the stockmarkets of countries with high inflation look more attractive than for countries with low controlled inflation. E.q. Zimbabwe would be a clear winner in your calculations. :)
Sean barry
ReplySean barry - 2 years ago
why 0.0% for the dividend? I believe the avg div yield for the TSX is approximately 3%
ReplyTxitxo - 2 years ago
Gasoline and Diesel Consumption in Spain is 20% lower now than in 2007. However, the official GDP numbers show that Spain's GDP is the same as in 2007. I would take them with a big pinch of salt.
ReplyRicoJay13 - 2 years ago
I don't see an "update" date for these projects. Ie, are these projected returns based on a recent update of any kind? How stale is the data?
ReplyAspenhawk - 2 years ago
Don't you think that economic growth for China should be 4 % máximum ?
ReplyGurufocus - 2 years ago
Ilia7777, for Russia, the growth rate should not be 0. It is displayed that way because there is no enough data. We need at least 8 years of data to do the calculation.
ReplyDsshah01 - 2 years ago
ReplyInvestex - 2 years ago
I'm not going to say exactly how yet, but soon hopefully you will see how I will personally contribute to significant change in market valuation for Russia. Gurufocus is the greatest investment resource in the world, thank you for teaching us what to do...
ReplyInvestex - 2 years ago
I spend quite a while reading about the method of valuation you use. Forgive me for being slow, but I still don't understand how the annual GDP growth for Russia has been 0%. The second part that I don't understand is 8 years economic cycle time period. How do we no where are we in the cycle ? It may take 2 years to return to the mean or in two years we may see new high which will skew all the data and will prompt for recalculation. If we leave the formula and methodology alone and just look at some other truths its pretty clear where the growth is going to be. This methodology projects 2% growth for Russia. With current market cap/GDP ratio of 46% vs US 98%, with most companies in Russia currently trading at half or even 1/3 of book value the choice where to put the money is pretty intuitive. Using historical data may be right for US but its definetely wrong for Russia and I will explain why. There are many reasons why the money is not flowing to Russian stock market which have little to do with fundamentals. It has to do with negative image of the country, political risks, low ratings, lack of transperancy, problems in corporate goverance, problems with focusing on investors for may executives, lack of research in eglish for Russian stocks and lack of visibility of financials and analysis in the world electronic systems. All this is changing, Russia is going to be the biggest economy in Europe by 2020. Mark this day on your calendar, Russia is not going to show average 2% return. It will show some of the highest numbers.
ReplyInvestex - 3 years ago
Your data about Russia makes no sense. In the graph you show growth in GDP year over year, but then you say:

Russia Historical GDP Growth
Historical GDP of Russia in billions of national currency. The GDP has grown at the annual rate of 0% over the past 8 years. Current Annual GDP: $1,676 billion US dollars or 53,535 in billions of national currency

How could this be ? Official data showed 4.5% GDP growth in 2011.
Same about expected return, your data is totally wrong based on the numbers that you are using. Russia has the most undervalued stocks out of all developed countries. Best companies in Russia like AFK Sistema which own the cream of the crop of Russian economy and is run by people close to Putin trades at half the equity. Do you think its going to last for long ? Also the trading volume of all russian brokers combined showed growth of 60% compared to last year, the total market cap of MICEX is going to increase in double digits on my humble opinion.
ReplyBankgamer - 3 years ago
according to the world bank Russia is projected to have an economic growth of >3.5% both 2012 and 2013
ReplyBankgamer - 3 years ago
"This is from the contribution of economic growth: 0%, Dividend Yield: 1.93% and valuation reverse to the mean 0%. "

Is the economic growth i Russia expected to be 0% in the next 8 years according to the worldbank? The valutation today i 45 % and the mean is 83%, how could the contribution of the reverse to the mean be 0%?
ReplyMpickering - 3 years ago
This analysis needs to use median not mean. The relative immaturity of some of these markets + the TMT bubble's impact to developed Europe/UK mean these economies' forward return estimates are significantly overstated using means.

Is this data available for download to subscribers? What is the source data (particularly for total market cap)?

ReplyLhughes - 3 years ago
It would be interesting to re-run with mining excluded from both the denominator and the numerator in the mkt cap to GDP ratio. Suspect it would provide a less distorted approximation.
ReplyLhughes - 3 years ago
It would be interesting to re-run with mining excluded from both the denominator and the numerator in the mkt cap to GDP ratio. Suspect it would provide a less distorted approximation.
ReplyGurufocus - 3 years ago
Polyocho, Rb is the current MarketCap/GDP ratio. Re is the target MarketCap/GDP ratio and the historical mean.

The time are in years. We use 8 years because that is roughly the length of one market cycle.
ReplyGurufocus - 3 years ago

We are not aware of any quarterly data.
ReplyPolyocho - 3 years ago
IF Re represents a mean, does Rb represent another mean? Did you select time=8 years or 10 years and are the units used for time years or months?
ReplyJbird707 - 3 years ago
Gurufocus, I have downloaded the annual market/GDP from World Bank. It was very helpful but the figures given are annual. Do you know where to find historical quarterly data? I imagine you've backtested the strategy using the annual figures correct? It would be useful to find quarterly historical figures for market cap/gdp to "rebalance" the selected pool of ETFs quarterly based on the changes in market cap/gdp ratio. Please let us know if you know where to find the quarterly figures.
ReplyPolyocho - 3 years ago
Why did you use a mean rather than a median value?
ReplyPolyocho - 3 years ago
IF Re represents a mean, does Rb represent another mean? Did you select time=8 years or 10 years and are the units used for time years or months?
ReplyGurufocus - 3 years ago
Re in the formula is actually the mean. Mean is calculated using all the historical data, not just two points.
ReplyPolyocho - 3 years ago
Can you please explain how 10.14 is calculated from your equation?(Re/Rb)(1/T)-1=10.14? It seems to me that your valuation method attempts to identify what the mean of TMC/GDP equals. Then to ascribe an amount that will enable the current TMC/GDP to revert to it (ie reversion to the mean). Using two points in time (Re/Rb) will not identify a mean or a reversion to it. Therefore, it doesn't make sense that the equation being posted is explaining your valuation method? If I am wrong please explain how you calculated 10.14 from the above equation or elaborate further on the equation that is being used by your system. Thank you.
ReplyGurufocus - 3 years ago
This data is not available for download yet.
ReplyPolyocho - 3 years ago
How was 10.14 calculated from (Re/Rb)(1/T)-1? Where can I download this data?
ReplyGurufocus - 3 years ago
Hi Guruchen!

It has been updated. thank you for pointing it out.
ReplyGuruchen - 3 years ago
Hi, I did not see the data of the year 2011 for China GDP, TMC and their ratios in your graphs. Could you take a look at it? Thank you.
ReplyGurufocus - 3 years ago
thank you for the kind messages, newhigh! This page is updated daily.

We will look to see if we can something to turnovers.
ReplyNewhigh - 3 years ago
As always, Gurufocus never disappoints. Keep up the good work Charlie and the rest of the GF crew. Hope to see regular updates on the Australian marcap vs GDP ratio. You'd be doing all of us a huge favor if you could also provide turnover vs Marcap data. Some of the data is found here, but it is not updated:
ReplyTdimo - 3 years ago
Dear Sir,
Sorry to bother you again. I am Chief Officer on Cruise Ship and I have not too much idea about investment. I invested lump sum impulsively March, April 2009 during the market panic sell off. American passenger gives me this jump when is a blood on the streets.....and when the market is at the bottom...
Could you please give some realistic % of return for the next 27-30 years?
Thank you again and I wish you a safe and successful journey in the investment world.
Best regards,
ReplyGurufocus - 3 years ago

$80,000 growing at 15% for 27 years will be $3.5 million.

Of course the real question is if it can grow that much.

ReplyTdimo - 3 years ago
Hallo Everybody and Guru Focus Team,
I have 34,000.00 $ invested Fidelity Greater China Fund
and 46,000.00 $ in Fidelity Pacific Fund
Total Pacific Region invested -80,000.00 $
I calculated average 15.42 % return as per your: Projected Annualized Market Return (%) China, Singapore, Australia, Japan, Korea, India, Indonesia.
Could please calculate approximately how much I will have after 27 years when I plan to retire.
Let say inflation 4.5% per year. I think net (real) return would be 10.9% per year or I am something wrong.
Thank you for your reply.
ReplyGurufocus - 3 years ago
thank you for the feedback Mergryanks! The GDP growth rates there are the long term averages, not the growth of the last year or two. The numbers are the average growth rate over the last 8 years.
ReplyMegryanks - 3 years ago
I find this piece interesting, but got a question here. Where do you get the GDP growth data? I can hardly see China growing at 16% and the U.S. growing at 4% (as of 2/13) using "past GDP growth rates of these countries". GDP for 4Q11 in the U.S. was reported 2.7%, and for the whole 2011 was 1.7%.
ReplyRagu - 3 years ago
Useful data & great presentation - thanks!

Occasionally it's been my habit to check the TMC/GDP data from the World Bank, here:

For some countries (eg Australia) they have a longer data series which gives a different picture of "normal". Maybe some of your expected returns are optimistic (because of high "normals")?
ReplyGurufocus - 3 years ago
thank you for the feedback!

With PE/10, we will need the earning data and the historical inflation rate in these countries. We cannot find the data. If you know where to find them, please let us know.

We use 8 year as the length of the market cycle.


ReplyRedcorolla95 - 3 years ago
1. You should look at including Hong Kong & Taiwan as proxies to China, but with better corporate governance. Some of the best long terms fund managers in Asia e.g. Aberdeen use this approach.

2. It's also quite important to use factors like the PE/10 or Shiller PE, because different countries may have fairly different baselines fr stock-market to GDP. Germany would probably rank higher on that measure too.

3. Singapore is unlikely to grow at 8% pa going forward - closer to 3-5% pa.

4. One component of the valuation is the return to the 'noamrl' valuations, in which case a key determinant is the time taken to reach 'normal' valuations - what's the time horizon you're using?
ReplyWindplayer13 - 3 years ago
Great addition!
ReplyRamands123 - 3 years ago
Good one
ReplySapporosteve - 3 years ago

Congratulations. As an Australian who buys local and global stocks, this is a very welcome addition to the site and one I will use often to assist me in buying and selling undervalued stocks.


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