Research Update

We have updated our research website with the data from December 2019. The most interesting results are summarized below.

Research in Charts

Analysts‘ forecasts: always positive, no predictive power

  • Many investors started 2019 with cautious expectations about the stock market due to Brexit, trade war and global economic slowdown. Who would have thought that the DAX would ultimately gain 25.5% and 2019 would be the 14th-best year for German stocks in the last 50 years?
  • As usual, the strong performance came as a surprise. At the end of 2018, the most important financial institutions forecasted an average DAX level of 12,053 points for the end of 2019. With a DAX closing level of 13,249 points, the experts reached a historically quite common estimation error of 16% (1,200 points).
  • Since 2000, DAX estimates for the next 12 months have been on average 18% off and corrections were never predicted by the consistently positive forecasts.
  • Interesting: Investors who had forecasted a constant 7-19% performance for every year since 2000 would have predicted the DAX as well as the expert's estimates.
  • The following applies to the average DAX price target of leading institutes for 2020 of 13,999 points: if the DAX closes 2,500 points higher or lower, investors should not be surprised. Historically, half of all estimates were even worse.


Long-term stock market outlook for the next 15 years

  • Although the stock markets are difficult to predict in the short term, there is a strong long-term relationship between the stock market valuation and its long-term performance.
  • Example: Investors who always invested in German stocks when the Shiller-CAPE was below 10, achieved average annual returns of 10% over the following 15 years. Investors who entered the markets expensively with a Shiller-CAPE of over 30 could only preserve their capital in the next 15 years (0.7%):
  • In the past 140 years, CAPE and PB valuations, as we see them today in the DAX, have been followed on average by annual (inflation-adjusted) returns of 6% in the long-term. Returns of 4-9% were achieved in the majority of the historical observation periods. Taking inflation into account, a DAX of 32,000-60,000 points appears most likely in 15 years.
  • Medium-term analysis: With a probability of 90%, the DAX should not drop below 11.800 points in three years. The upside potential is much higher: the DAX will most likely trade between 14.600 and 21.500 points (50%) or higher.
  • The worst-case analysis also appears interesting. This represents the worst possible performance that followed a valuation comparable to today since 1871, i.e. including the two world wars and the great depression of 1929. Even if such scenarios occur, the DAX should hold roughly the current level in 15 years.
  • Chart with additional methodological details

  • We calculated such a scenario corridor for the first time at the beginning of 2014. This is shown below, with only the current DAX development being supplemented. So far, the DAX has traded within the ranges expected at the time and the long-term likely price developments are still very similar to the forecasts made at the time.
  • The more expensive US market, on the other hand, shows great potential for disappointment - if historical experience continues to exist in the future, price declines over 2-6 years and a longer-term stagnation under high volatility are likely:
  • For details on the methodology, see study Predicting Stock Market Returns Using the Shiller-CAPE (2016)


Stock Market Valuation

Based on a universe of 6,500 companies, each month, we calculate fundamental valuation ratios for several countries and regions. 

  • Ranking of regions based on Shiller-CAPE: Emerging Markets and Europe ahead, United States well behind:
    • Eastern Europe: 9.9
    • BRIC: 15.5
    • Emerging Markets: 15.8
    • Asia (EM): 16.3
    • Germany: 18.9
    • Europe (DM): 19.5
    • America (EM): 20.7
    • World: 24.2
    • Developed Markets: 25.7
    • United States: 31.1

  • Most attractive countries based on:
  • CAPE PB PC Div. Yield
    Russia (7.8) Greece (0.9) Russia (4.8) Russia (6.6%)
    Turkey (8.5) Russia (1.0) Hungary (5.0) Czech (5.8%)
    Czech (10.2) Korea (South) (1.0) Turkey (5.3) Portugal (4.5%)

Interactive Map: Stock Market Valuation Ratios

Stock Market Expectations

We calculate the returns equity investors can expect over the next 10-15 years in several regions. The forecasts are based on the current CAPE and PB.

  • What long-term returns can investors expect based on fundamental valuation (in real terms):
    • World AC: 5.3% p.a.
    • Europe: 6.5% p.a.
    • United States: 2.7% p.a.
    • Emerging Markets: 7.5% p.a.

  • Developed Countries with highest expected returns: Korea (South) (10.3%), Singapore (9.8%), Austria (8.7%)
  • Developed Countries with lowest expected returns: Denmark (2.6%), United States (2.7%), Ireland (3.1%)

Details: Stock Market Expectations


Based on the Fama and French HML-factors (High Minus Low), we calculate value premiums for the most important regions.

  • Longest period of losses in history: value stocks disappointed compared to growth stocks for years. This applies not only to the US market, but to all major regions:
  • Fama and French HML value premiums over the last 5 years for the most important regions:
  • Details and background can be found in our research paper The presumed end of the Value premium.
    • Global: -4.3% p.a.
    • United States: -4.1% p.a.
    • Europe: -3.8% p.a.
    • Japan: -3.4% p.a.
StarCapital - Norbert Keimling

Contact Us

For queries or additional information please contact:

Norbert Keimling
Head of StarCapital Research