America s 39% stock plunge> last year was grizzly, but plenty of nations did worse. China lost 65% and Russia 72%. World stocks have rallied since March, and some of the most battered markets have gotten the biggest lifts. So where do prices stand?
The chart below offers a snapshot. Price/earnings ratios are listed for major markets, or at least, for exchange-traded funds that target those markets. They re based on trailing earnings, which some might think unfair, since earnings plunged over the past year. But in the U.S., at least, corporate profits have reverted toward their long-term average as a percent of the economy, not away from it.
Growth rates for gross domestic product are listed, too. These would have misled if I had used either this year s miserable forecasts or bubbly numbers from before the bust. I took a six-year average of numbers published by the Economist Intelligence Unit. One of those years is already booked (2008). The rest are just forecasts, and I suspect like all forecasts, the further out they go the less reliable they become. However, they re fine for rough analysis.
In the final column I simply discounted the P/Es by the GDP growth rates to make growers look properly better and shrinkers look worse. (With stocks, it s common to do the same thing by dividing P/Es by growth projections, but with growth numbers this small and varied that would have proved messy.)
The results suggest a few things. Three of the four BRIC countries -- Brazil, Russia, India -- still look like good deals. China has gotten pricey. Canada has had a fine run since March but now seems priced on par with the U.S. Japan, where stocks today fetch lower prices than they did 25 years ago, still isn t especially cheap.
Since Mar. 31
|* From ETF sponsors, adjusted for price changes since last reported|
** Average for 2008-2013, Economist Intelligence Unit
Data as of May 7, 2009