Country CAPE Ratio Preview: Ireland, Russia Come In Low

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The country CAPE ratios researched by Mebane Faber have shown in no uncertain terms that they are a reliable pointer to under-valued or overpriced equities by country.

Countries that presented low CAPE ratios as of end-2012 have generally rewarded investors with high returns during 2013 as per Mebane Faber’s analysis, and the chart below:


Country CAPE ratios are good barometers

Of special interest is the fact that the five countries at the bottom of the CAPE heap as of end-2012 went on to generate 20.74% returns in 2013.

Contrarily, the five countries with the highest CAPE ratios as of 2012 lost 17.81% over the following year.

Of course, a couple of countries moved spectacularly off the beaten path. Russia had a comparatively low CAPE of 7.2 in 2012, yet returned a negative 0.88% in 2013. On the other hand the United States shrugged off a high 21.1 CAPE with a thundering 33.45% gain in 2013.

Nevertheless, investors should look at these CAPE ratios as reliable pointers to valuations that may be cheap or overly expensive, and combine with other technical or fundamental research to obtain an investment rationale for the concerned country.

A sneak peek at end-2013 country CAPE ratios

The Idea Farm by Mebane Faber carries the latest country CAPE ratios by country as of end-2013.

The useful chart on the site shows, country-wise, the latest CAPE ratio along with the minimum, maximum and median reads for the period covered. Countries are grouped within Developed, EAFE, Emerging and Frontier sectors. Here are some countries of note:

Russia still comes in at one of the lowest CAPE readings at 6.96 (median 8.51). It already returned (-0.88%) in 2013.

Ireland is at a low 7.25 (median 11.61) even though it returned a prodigious 45.58% in 2013.

Spain is at 10.32, though it appreciated 32% in 2013. The country’s economy is rapidly improving and marquee investors are taking bigger exposures to macro-sensitive companies.

The United States is the second-highest CAPE at 25.44 and it already has a 33.45% return in 2013 under its belt.

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