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The Stock Markets of Spain and Italy Are at Historical Low Valuations

May 02, 2012 | About:

We have just reviewed the U.S. market valuation and concluded that the market is at multi-year highs and positioned for mediocre returns. The situation in Europe is almost the opposite. The European crisis continues to unfold, and many of the European markets are traded at multi-year lows. Though it is scary and the crisis there will last a while, the long-term return in Europe might be better than its U.S. counterparts. Especially in Spain and Italy, the market is now at historical lows.

The details and daily updates for the valuations of different countries are listed in the page of Global Market Valuations.


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.


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.”

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 4.1/5 (14 votes)


Vgm - 5 years ago    Report SPAM
Interesting piece. Thanks. A couple of points:

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.
Gurufocus premium member - 5 years ago
We will never know if there will be another bull run in the next few years. But Hussman is saying the current market is at the top 1% risky zone. Prem Watsa is fully hedged. Jeremy Gratham is saying the return of 2%. And our own market valuation pages are indicating the same.

We would rather believe the future return will be mediocre instead of betting on a bull run.
Vgm - 5 years ago    Report SPAM

In fact, Buffett was on recently talking about how he thought the US market was still reasonably priced, even after the run in 2012. Other value investors have made the same point. In evaluating stock prices you need to take bond yields into account.

I have the greatest respect for Prem Watsa, but he's been hedged all the way from the bottom in 2008/9 and thereby missed alot of the upside.

No offence, but Hussman carries little weight for me, and Grantham has been a bear since time immemorial.
Cornelius Chan
Cornelius Chan - 5 years ago    Report SPAM
This is a really interesting and useful type of article. I was just reviewing the Global Market Valuation tool the other night and was not surprised at Singapore's 18% but was quite surprised by the high % rankings of Spain and Italy. I was obviously just thinking GDP of these two countries and not their low market valuations. Gurufocus guests should be thankful to have this kind of research available for free.

On a side note, I am pleased that most of the stocks on my blue chip and emerging blue chip watchlists for Spain and Italy show up in your database for 10-year financials.

Missing are Fiat (FIATY) of Italy and Iberdrola (IBDRY) of Spain.
Dak427 - 5 years ago    Report SPAM
Price Index MIB 30 has been replaced by FTSE MIB Oct 2003,

and is now at the Level of 1993/1994.

from http://de.wikipedia.org/wiki/MIB_30

Spain Ibex35 Price Index is trading at Level of 1997 now,

and only looking at the Price Index Italy seems to be cheaper.

Superguru - 5 years ago    Report SPAM
With Spain and Italy both attractive which one do you think has lower risk?

Batbeer2 premium member - 5 years ago
@ Superguru

Most of the Spanish companies I've looked at had too much debt for my taste (debt adds risk).

I haven't looked at Italy in earnest (yet). SAES Getters and Natuzzi come to mind. Both IMO are well-run, have a global franchise and are not burdened with excessive debt.

If I had to choose, I'd go for Italy.

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