On Friday, the 31st anniversary of the 1987 financial crisis, Warren Buffett (Trades, Portfolio)’s market indicator stood at 142.3%. Although the Buffett indicator declined approximately 5.5% from its Oct. 1 level, the U.S. stock market remains significantly overvalued.
Buffett’s market indicator still above 140% despite recent market slumps
CNBC columnist Fred Imbert said although the Dow reached an intraday high Friday morning on strong earnings from American Express Co. AXP and Yacktman Asset Management (Trades, Portfolio)’s Proctor & Gamble Co. PG, the Dow remains sharply down for October, tumbling over 4% for the month. The U.S. market setback included a 300-point nosedive on Thursday, led by continued worries about the U.S.-China trade war and rising interest rates, according to Imbert.
Buffett warned that interest rates “act on financial valuations as gravity acts on matter”: as interest rates rise, the rates push the prices of “all other investments” downward. The 10-year Treasury constant maturity rate reached a seven-year high of 3.2% on Oct. 4, sending the Dow 200 points lower that day.
Despite the setback, the Wilshire 5000 full cap market index is still 1.42 times greater than the U.S. gross domestic product, continuing its significantly overvalued trend. Based on this market valuation level, the expected market return over the next eight years is approximately -1.9% per year.
Asian markets remain undervalued
Table 1 shows the value screener record trends for the Ben Graham Net-Net screen as of Aug. 8, Sept. 6 and Oct. 19.
| Date | USA | Canada | UK / Ireland | Europe | Asia | Oceania | Latin America | Africa | India |
| Aug. 8 | 219 | 78 | 46 | 199 | 564 | 17 | 4 | 12 | 143 |
| Sept. 6 | 147 | 69 | 46 | 196 | 576 | 15 | 3 | 14 | 149 |
| Oct. 19 | 256 | 71 | 37 | 221 | 603 | 13 | 5 | 12 | 154 |
Table 1: Ben Graham Net-Net Working Capital Screener Record by Region
According to Table 1, the number of Asian stocks making the Ben Graham Net-Net screen increased month over month since August, suggesting possible undervaluation of Asian markets.
The Berkshire Hathaway Inc. BRK.ABRK.B CEO’s market valuation concept can also be applied to global markets as described on our global market valuation page. Figure 1 illustrates the ratio of market cap to gross domestic product for 20 global markets around the world, while Figure 2 illustrates the expected return.
Figure 1
Figure 2
As Figure 2 illustrates, Asian markets that are undervalued include Singapore, Korea, China, India and Indonesia.
See also
Premium members can view the stocks making the value screeners. GuruFocus also offers subscriptions for popular regions like the U.S., Asia, Europe, the U.K., Latin America and Oceania. We now offer India and Pakistan as a separate region.
Disclosure: No positions.
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