Canada Stock Market Valuations and Expected Future Returns

Updated at Fri, 05 Sep 2014 16:00:22 -0500
Country: Canada (updated daily) check out Global Overview for detailed methodology.

Ratio of total market cap over GDP: Maximum - 190%; Minimum - 78%; current - 135%
Expected future annual return: 3.3%

ETF Used for dividend yield: EWC (Yield=1.46%)
Market Index used: TSXSP
Current Annual GDP: $1,709 billion US dollars or 1,858 in billions of national currency (Annual growth=3.85%)
Data since year 1990


Canada Historical GDP Growth

Historical GDP of Canada in billions of national currency. The GDP has grown at the annual rate of 3.85% over the past 8 years. Current Annual GDP: $1,709 billion US dollars or 1,858 in billions of national currency

Canada GDP (Billion, National Currency)

Historical Stock Market Cap

Historical total market of Canada in billions of national currency. This value is normalized using the data published by WorldBank. TSXSP is used for the normalization. Use TSXSP as index, data goes back to 2000. The index comprises about 70% of market capitalization for all Canadian-based companies listed on the TSX. Annual GDP data from IMF, back to 1990, in billions Canadian Dollar.

Canada Total Market Cap (Billion, National Currency)

Historical Ratio of Total Market Cap over GDP (%)

The current ratio of total market cap over GDP for Canada is 135%. The historical high was 190%; the historical low was 78%. If we assume that the ratio will reverse to the historical mean of 118% over the next 8 years, the contribution to expected annual return is -1.98%. This is the detailed historical chart of the ratio.

Canada Ratio of Total Market Cap over GDP (%)

Conclusion

The stock market of Canada is expected to return 3.3% a year for the coming years. This is from the contribution of economic growth: 3.85%, Dividend Yield: 1.46% and valuation reverse to the mean -1.98%.

This is the projected return of the stock market in Canada relative to other countries. Click on each bar in the chart to go to other countries:


You can go here to see what international stocks Gurus are buying.

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User Comments

Richard@linkedin
ReplyRichard@linkedin - 3 days ago
Ragu,

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...

Rich
Carol Nadon
ReplyCarol Nadon - 1 month ago
I also would love if you guys add Schiller PE10 valuations for Russia, Brazil and China stock markets.
Horgand
ReplyHorgand - 2 months 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.
Bubb_rubb
ReplyBubb_rubb - 5 months 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?
Facoid737@google
ReplyFacoid737@google - 5 months ago
Friendly hay I work now
Rjack@facebook
ReplyRjack@facebook - 5 months 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?
Jcourter81@gmail.com
ReplyJcourter81@gmail.com - 6 months ago
would love to see CAPEs by country in comparison to countries historical CAPE figure! Thanks for all the great data GF
Horgand
ReplyHorgand - 7 months ago
Top class, well done, keep up the great work!!

p.s. I agree that CAPEs for world markets would also be very useful
Larswausc@facebook
ReplyLarswausc@facebook - 7 months ago
thank you i tell that governments
Radenpatah
ReplyRadenpatah - 7 months 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!
Rjmmd
ReplyRjmmd - 8 months 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!
Chaim422
ReplyChaim422 - 9 months 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?
Avenoak
ReplyAvenoak - 9 months 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?
Michaelcharles
ReplyMichaelcharles - 9 months 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.
Gurufocus
ReplyGurufocus - 9 months 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.
Jmh600
ReplyJmh600 - 9 months ago
Gurufocus,

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.

Best,
John
Philtcu
ReplyPhiltcu - 10 months ago
Rrurban,

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

Thanks,

Rrurban
ReplyRrurban - 11 months 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%
Rrurban
ReplyRrurban - 11 months 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%

Gurufocus
ReplyGurufocus - 11 months ago
Good suggestion Weltzinbrau!

We will see if we can find the data on the ratio of public and private companies.
Weltzinbrau
ReplyWeltzinbrau - 11 months 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.
Gurufocus
ReplyGurufocus - 1 year 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.
Newhigh
ReplyNewhigh - 1 year 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.
Newhigh
ReplyNewhigh - 1 year 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?!
Newhigh
ReplyNewhigh - 1 year 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!
FA_suitmoney
ReplyFA_suitmoney - 1 year ago
UANFG OYYYY
Herkshire Bathaway
ReplyHerkshire Bathaway - 1 year ago
Nwoodman,
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.
Nwoodman
ReplyNwoodman - 1 year 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
Jmh600
ReplyJmh600 - 1 year 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
Greyowlsova@google
ReplyGreyowlsova@google - 1 year 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 - 1 year ago
why 0.0% for the dividend? I believe the avg div yield for the TSX is approximately 3%
Txitxo
ReplyTxitxo - 1 year 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.
RicoJay13
ReplyRicoJay13 - 1 year 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?
Aspenhawk
ReplyAspenhawk - 1 year ago
Don't you think that economic growth for China should be 4 % máximum ?
Alex@ajfp.com.au
ReplyAlex@ajfp.com.au - 1 year ago
I am confused for Australia you have an annualised economic growth rate for GDP of 7.05%. Looking at the past 10 years however there has only been one year which has been above 5%. Looking at the below link it looks like it has spent most of it's time around 3% GDP Growth p.a.. The forecasts by the RBA are only between 2-3%. Are these number accurate?

http://www.tradingeconomics.com/australia/gdp-growth-annual
Gurufocus
ReplyGurufocus - 1 year 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.
Dsshah01
ReplyDsshah01 - 1 year ago
Polyocho,
U
Ilia7777
ReplyIlia7777 - 1 year 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...
Ilia7777
ReplyIlia7777 - 1 year 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.
Ilia7777
ReplyIlia7777 - 2 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.
Bankgamer
ReplyBankgamer - 2 years ago
according to the world bank Russia is projected to have an economic growth of >3.5% both 2012 and 2013
Bankgamer
ReplyBankgamer - 2 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%?
Mpickering
ReplyMpickering - 2 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)?

Thanks,
Lhughes
ReplyLhughes - 2 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.
Lhughes
ReplyLhughes - 2 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.
Gurufocus
ReplyGurufocus - 2 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.
Gurufocus
ReplyGurufocus - 2 years ago
Jbird707,

We are not aware of any quarterly data.
Polyocho
ReplyPolyocho - 2 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?
Jbird707
ReplyJbird707 - 2 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.
Polyocho
ReplyPolyocho - 2 years ago
Why did you use a mean rather than a median value?
Polyocho
ReplyPolyocho - 2 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?
Gurufocus
ReplyGurufocus - 2 years ago
Re in the formula is actually the mean. Mean is calculated using all the historical data, not just two points.
Polyocho
ReplyPolyocho - 2 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.
Gurufocus
ReplyGurufocus - 2 years ago
This data is not available for download yet.
Polyocho
ReplyPolyocho - 2 years ago
How was 10.14 calculated from (Re/Rb)(1/T)-1? Where can I download this data?
Gurufocus
ReplyGurufocus - 2 years ago
Hi Guruchen!

It has been updated. thank you for pointing it out.
Guruchen
ReplyGuruchen - 2 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.
Gurufocus
ReplyGurufocus - 2 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.
Newhigh
ReplyNewhigh - 2 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: http://www.nationmaster.com/graph/eco_sto_tra_tur_rat-economy-stocks-traded-turnover-ratio
Tdimo
ReplyTdimo - 2 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 advice.....to 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,
Tony
Gurufocus
ReplyGurufocus - 2 years ago
Tdimo,

$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.

GuruFocus.
Tdimo
ReplyTdimo - 2 years ago
Hallo Everybody and Guru Focus Team,
I have 34,000.00 $ invested Fidelity Greater China Fund http://www.fidelity.com.sg/our_funds/factsheet/index.html?funds=44009
and 46,000.00 $ in Fidelity Pacific Fund http://www.fidelity.com.sg/our_funds/factsheet/index.html?funds=44017
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.
Gurufocus
ReplyGurufocus - 2 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.
Megryanks
ReplyMegryanks - 2 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%.
Ragu
ReplyRagu - 2 years ago
Useful data & great presentation - thanks!

Occasionally it's been my habit to check the TMC/GDP data from the World Bank, here: http://data.worldbank.org/indicator/CM.MKT.LCAP.GD.ZS?page=1

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")?
Gurufocus
ReplyGurufocus - 2 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.

Thanks!

GuruFocus.
Redcorolla95
ReplyRedcorolla95 - 2 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?
Windplayer13
ReplyWindplayer13 - 2 years ago
Great addition!
Ramands123
ReplyRamands123 - 2 years ago
Good one
Sapporosteve
ReplySapporosteve - 2 years ago
GuruFocus,

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.

Regards


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