Monday, May 5, 2008

GDP growth vs. P/E for international ETF.

One indicator, PEG, of fundamental analysis measures P/E relative to growth (EPS growth). It is especially helpful to compare stocks, indexes. Low P/E not necessary means under valuated price. It's always needed to compare with potential growth. PEG indicator uses EPS growth as a denominator.

I made following analysis for world stock markets. Assets are regional ETF underlying international stocks. It's not problem to find P/E ratio for ETF in question but it's always difficult to find EPS respectively EPS growth data. Therefore I used expected GDP growth (2008) for world economies (based on IMF prediction). Which means as a PEG denominator is GDP growth instead of EPS growth.


International ETF - fundamental data.

As you can see the best valuation (the lowest PEG) is for China followed by India, Brazil and Russia. All emerging countries of BRIC.

Scatter chart below shows where international ETF stand in relation P/E ratio vs. GDP growth. The farest ETF from diagonal on the right side means the most under valuated. On the left we talk about over valuated.


Related tickers: (EWI), (IVV), (EWC), (EWJ), (EWG), (EWQ), (EWU), (EWP), (EWW), (EWY), (EWA), (EWZ), (EWH), (RSX), (INP), (FXI)

Comments

9 Responses to "GDP growth vs. P/E for international ETF."

techfarmer said... May 6, 2008 at 6:03 AM

Great post.

I highlighted your information in my latest Blog Post at Techfarm.Blogspot.com

Vlada, Czech Republic said... May 6, 2008 at 8:51 AM

Thank you for nice words and for mentioning my post on your blog.

Best regards
Vlad

Vlada, Czech Republic said... May 6, 2008 at 10:02 AM

Any suggestion where to find EPS growth for ETF is welcome. I think it is available from etfresearchcenter . com

Anonymous said... May 14, 2008 at 11:15 PM

Is the growth rate adjusted for inflation?

Dorian Wales said... May 31, 2008 at 7:22 PM

I believe the system should be adjusted a bit. As it stands now it assumes a perpetual growth rate of a certain percent making developing countries significantly under-priced. I believe it should be adjusted to include a short-term and steady state growth rate.

Adjustemts to inflation are also required. interesting.

Vlada, Czech Republic said... May 31, 2008 at 8:00 PM

Thank you Dorian for your comment. When you say "short-term steady growth rate" what would be proper period in your view?

Vlada

Anonymous said... September 25, 2009 at 6:18 PM

Great post, these valuations are extremely helpful.

I'm not trying to be a pain in the butt here, but in the future would you consider including Indonesia in these charts? It's the fourth-largest country in the world (by population), and I think it would be very helpful if we could compare Indonesia's valuations against other markets. People tend to focus on the BRICs so much, and sometimes southeast Asia gets left out of the discussion. Thanks.

Vlada, Czech Republic said... September 26, 2009 at 2:42 PM

Thank you for your remark. I appreciate it and fully agree with you. Next time I will include Indonesia in the analysis. I can use Indonesia fund (IF) for analysis. Or if you have tip for some other fund underlying Indonesian assets please let me know....

Anonymous said... September 28, 2009 at 3:59 PM

IF is a good choice, the only other one I know of is IDX.

I was actually considering buying one of these ETFs (both have been on fire for the past 6 months or so).