According to Global Market Valuation pages, several Asian and European stock markets remain undervalued as of Friday based on Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s favorite market indicator.
U.S. markets finish July with a bang
On Friday, the Dow Jones Industrial Average stood at 32,845.13, up 315.50 points from Thursday’s close of 32,529.63. The Dow gained 6% during the month, its highest since March 2021.
Likewise, the Standard & Poor’s 500 Index gained 8.8% for the month, while the Nasdaq Composite Index gained 12%, the highest monthly gain since November 2020.
According to the Aggregated Statistics Chart, a Premium feature of GuruFocus, the mean one-month total return of S&P 500 stocks is 8.21% with a median of 8.38%.
Buffett Indicator concept overview
Buffett pointed out that the ratio of total market cap to the gross domestic product is “probably the best single measure of where valuations stand at any given moment.” GuruFocus modified Buffett’s indicator by adding total Federal Reserve assets to the denominator.
As of Friday, the modified Buffett Indicator for the U.S. market stood at 123.4%, showing the market is significantly overvalued compared to the 20-year median ratio of 93.22%. Based on this market valuation level, the implied market return per year for the U.S. market is 1.9% assuming that markets reverse to the 20-year median ratio.
GuruFocus applied this concept to more than 26 countries around the globe using the countries’ own market cap, gross domestic product and central bank assets values. Figure 1 illustrates the projected market return of various countries as of Friday.
Figure 1
The countries on the left side of the dashed vertical bar represent more developed markets, while the countries on the right side represent emerging markets. As Figure 1 illustrates, the five developed markets with the highest implied market returns as of Friday are Singapore, Spain, Australia, Italy and Belgium.
Singapore
The modified Buffett Indicator for the Singapore stock market stands at 82.87%, showing the market is modestly undervalued compared to the 20-year low of 53.86% and the 20-year high of 177%. Based on this market valuation level, the implied market return per year of Singapore's stock market is approximately 13%.
Spain
The modified Buffett Indicator for Spain's stock market stands at 25.33%, showing the market is significantly undervalued compared to the 20-year low of 21.87% and the 20-year high of 110.25%. Based on this market valuation level, the implied market return per year of the Spanish market is approximately 16%.
Australia
The modified Buffett Indicator for the Australian stock market stands at 80.59%, showing the market is modestly undervalued compared to the 20-year low of 68.1% and the 20-year high of 141.2%. Based on this market valuation level, the implied market return per year of Australia's stock market is approximately 10.4%.
Italy
The modified Buffett Indicator for the Italian stock market stands at 13.13%, showing the market is significantly undervalued compared to the 20-year low of 11.4% and the 20-year high of 46.9%. Based on this market valuation level, the implied market return per year for Italy's stock market is approximately 13.20%.
Belgium
The modified Buffett Indicator for Belgium's stock market stands at 37.05%, showing the market is modestly undervalued compared to the 20-year low of 23.01% and the 20-year high of 77.62%. Based on this market valuation level, the implied market return per year for Belgium's stock market is approximately 12.2%.
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