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Vera Yuan
Vera Yuan
Articles (1063) 

Global Market Valuations and Expected Returns - Sept. 4, 2013

September 05, 2013 | About:

We reviewed the U.S. market valuations and the expected return and found that U.S. market is expected to return 2.2 to 2.8% a year in the future years. The global market provides a totally different picture. The returns in some countries can be much higher.

The details of how to estimate the future market returns of the global market, the data sources and the interpretation of data have all been discussed in great detail in our new page of Global Market Valuations. Please go to that page if you want to learn more and have unanswered questions.

In August, European stock markets went down a little. The FTSE 100 index lost 2.63% in July, while France’s CAC-40 index dropped 0.91%. Germany’s DAX index declined 1.98% for the month. The emerging market might face the risk of growth slowing down because of the prospect of the Federal Reserve scaling back its $85 billion bond purchase program as soon as September.

Please note that there are large errors in predicting the future returns of emerging market because not enough historical data is available. These countries may not be able to grow at the same rate as they did before. But in general, the chance of have better future returns are higher for these market that are traded below historical means than for those that are traded above.

As of Sept. 5, 2013, the expected returns for the global market are shown in the chart below:


Among developed countries, Singapore and Spain have the highest expected market returns. Australia used to be one of the top two countries which have the highest expected market returns for a long time, yet in August it dropped to the forth place. The expected returns are in the order of mid-teens a year. Among developing countries, Chinese market is still the highest. The expected return is in the order of 34.6% a year.

Three factors decide the expected returns of the market. They are economic growth, dividend payment and the current market valuations. If the current market valuation is below its historical mean, the contribution from the reversion of the market valuation to the mean is positive. Otherwise, it is negative.

Among developed countries, contributions from reversion to the mean for Korea, Sweden, Canada, UK, Switzerland, USA and Germany market are negative because these stock market in these countries are traded above historical means. For developing countries, those for Indonesia and Mexico are negative. The details can be seen in the chart below:


These are the details of the expected return for the world’s largest markets:

For detailed information and data interpretation, go to the Global Market Valuations page.

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