We have updated our research website with the data from October 2019. The most interesting results are summarized below.
Research in Charts
Value Cycle: turnaround since August?
- Value stocks have been disappointing for over a decade and the underperformance has intensified over the course of the year, but since August we are seeing a turnaround.
- Since then, global value stocks have grown almost twice as fast as the global market (MSCI AC World +5.8% vs. MSCI AC Enhanced Value +11.0%, RI in EUR).
- At the same time, low-volatility, growth and quality strategies, which have grown at an above-average rate in recent years, remained significantly behind (see chart).
- As the length of the value weakness of over a decade as well as the level of underperformance are close to historical highs, a long-term rebound would be more than overdue.
- Especially as value stocks are still extremely undervalued: Since 1974, investors have paid an average premium of 78% for european growth stocks compared with value stocks. At the peak of the New Economy bubble in spring 2000, investors temporarily paid extreme premiums of 155%. Since the end of August, this premium has been trading at comparable levels again.
- Further information on this topic can be found in our paper The presumed end of the value premium. Our conclusion: After almost all investors have left the value segment and even fundmanagers have softened their strategies with growth criteria, there are interesting opportunities in the value segment.
Stock Market Valuation
Based on a universe of 6,500 companies, each month, we calculate fundamental valuation ratios for several countries and regions.
- Assuming a fair CAPE of 18.3 and a fair PB of 1.8, currently 18 out of 40 stock markets are trading below this fair value. 11 out of 40 trade above these values, the remaining countries are valued inconsistently.
- Ranking of regions based on PB: Emerging Markets and Europe ahead, United States well behind:
- Eastern Europe: 1.0
- Germany: 1.6
- Emerging Markets: 1.7
- Europe (DM): 1.8
- Asia (EM): 1.9
- America (EM): 1.9
- World: 2.1
- Developed Markets: 2.2
- United States: 3.4
- Most attractive countries based on:
|Turkey (7.6)||Greece (0.9)||Russia (4.5)||Russia (6.4%)|
|Russia (7.7)||Korea (South) (0.9)||Hungary (4.8)||Czech (5.9%)|
|Czech (9.8)||Russia (1.0)||Turkey (5.4)||Portugal (4.6%)|
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: 5.5% p.a.
- Europe: 6.8% p.a.
- Germany: 7.3% p.a.
- United States: 3.0% p.a.
- Emerging Markets: 7.8% p.a.
- Developed Countries with highest expected returns: Korea (South) (10.6%), Singapore (9.8%), Austria (8.7%)
- Developed Countries with lowest expected returns: United States (3.0%), Denmark (3.0%), Ireland (3.5%)
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:
- Global: -5.2% p.a.
- United States: -4.3% p.a.
- Europe: -4.2% p.a.
- Japan: -3.8% p.a.