As 2013 begins we thought it would be interesting to look at market valuations in the Euro-zone, as well as some major stock markets outside  Europe. The MSCI Europe rose approximately 15% in 2012, but some countries are still trading at a low valuation (at least in terms of quantitative metrics). Earnings are still depressed, boosting the PE ratios, but other metrics like price over book value is low in many countries. Additionally, the Shiller PE is extremely low in countries such as Greece, Italy, Ireland, and other members of the ‘PIIGs’. Emerging Europe is quite cheap on a quantitative basis (MSCI numbers). 2013 begins with European emerging market equities at a PE Of 7.2, which is 47 percent below MSCI Europe at 13.4x. The ETF SPDR S&P Emerging Europe (ETF) (NYSE:GUR) is currently trading at a PE of 8. Emerging Europe consists of Hungary, Poland, Czech Republic, Russia and Poland. MSCI Europe has an ETF as well, Vanguard MSCI Europe ETF (NYSE:VGK). According to recent data from Nomura, Russia is the cheapest stock market in the world. Market Vectors Russia ETF (NYSE:RSX) has a PE of just 6, and a Shiller PE of just under 7.

Country and Regional Index Valuation Data


Greece has a PE TTM of 9.6x, compared to a Shiller PE of 2.5, Global X Funds (NYSE:GREK), tracks the largest Greek companies. Austria  has  11x PE for the trailing 12-months, the ETF which tracks the country is iShares MSCI Austria Investable Mkt (NYSE:EWO).

The frontier markets equities trade at 10.7x, while the U.S and Japanese equities trade at an average 14.5x and 24.8x respectively. Canadian equities are trading at 16.7x, while the U.K equities are priced at 11.8x.  However, there are some countries whose equities are still more expensive than the U.S equities. A good example being Denmark at 20.6x, Belgium, iShares MSCI Belgium Investable Mkt (ETF) (NYSE:EWK), at 18.7x, and the republic of Ireland (iShares MSCI Irld Cp Invstb Mrkt Indx Fd:EIRL); a country considered by most multinationals as a cash haven, equities trade at 25x.

 Most of these countries look cheaper based on book value or 10 years of earnings, as mentioned above. However, equities are far more expensive than they were when we last measured in August.

According to a recent report from Barclays; of the 10 cheapest regional indices based on the cyclically adjusted pe (Shiller pe), 8 are from  developed Europe.

shiller PE in developed markets from India to Greece

Barclays sees Spain and Italy as particularly attractive, as the chart below shows:

Italy and Spain dividend yields

Sector growtn Estimates

Industry-wise, the Insurance leads the charts in terms of EPS growth rate with about 37 percent growth in 2012. Consumer durables and apparels EPS growth rate stand at 21.6 percent, while automobiles and components stand at 24.2 percent. In terms of sectors, Consumer discretionary EPS has grown better than any of the other sectors, at 14.8 percent, while information technology has fallen by 29.8 percent.

Consumer staple and industrials sectors also have positive EPS growth rates albeit minute, at 6.9 percent and 6.3 percent respectively. The materials sector has fallen by 21 percent, whereas the telecommunications sector is down 8.6 percent. Nonetheless, the production of smartphones and tablets is expected to thrust the Technology Hardware and Equipment Industry to a record high with an EPS of 203.4 in 2013, while the Semiconductor Industry EPS will grow by 40 percent in 2014.