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The details and daily updates for the valuations of different countries are listed in the page of Global Market Valuations.
Spain
The Spanish stock market is now traded at the lowest valuation over the past 20 years. The valuation as measured by total market cap over GDP is at 58%. The highest point was 194% in 1999. This is the historical ratio since 1994:
If we believe that over time, the valuation will revert to the mean, the Spanish market may give double-digits annual returns in the coming decade even if we assume zero growth in the Spanish economy. The contribution from dividend yield is 6.07% and from valuation reverse to the mean is 7.51%. For details, check out Spanish Market Valuation.
Italy
We have a relatively short history of data for the Italian market. Currently the ratio of total market cap is only about a third of what it was in 2007. This is the historical ratio of total market cap over GDP:
Again if we assume no economic growth in Italy for the next decade, the Italian stock market may still give double-digits returns. The contribution from dividends is more than 4%, and contribution from a valuation reverse to the mean alone is more than 9% annually. For details, check out Italian Market Valuation.
The situations in Spain and Italy are certainly bad, and may get worse before they get better. Today the Spanish market sunk another 5%. But as Warren Buffett wrote in his famous op-ed Buy American. I Am., “So if you wait for the robins, spring will be over.”
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1. Just for the record,the Spanish IBEX index (if that's what you are referring to) was down 2.5% today May 2, not 5%.
2. Although you say in your intro "We have just reviewed the U.S. market valuation and concluded that the market is at multi-year highs and positioned for mediocre returns.", it's perhaps worth pointing out that a significant number of investors maintain that (a) stocks are still cheap, (b) we are at the beginning of a bull run, and (c) stocks have the potential to deliver better than "mediocre returns".
3. I'd be interested to see the charts for the US and the UK for comparison.