Global Stock Market Valuations

A common measure of stock market valuation is the price / earnings (P/E) ratio. The calculation takes a company’s price and divides it by its earnings per share. The resulting ratio can be compared throughout history or to other countries.

As of December 31, the P/E ratio of large U.S. stocks (using trailing earnings), was 38.0x, which is much higher than the historical average (although earnings were low due to the pandemic). The stock market in India was even more expensive, with a P/E of 38.4x. Australia’s P/E was the highest among developed nations, with a P/E of 43.8x, nudging out France (40.8x) and Canada (38.1x).

That basically means that the U.S. is not alone in having historically high stock market valuations. But not all countries are quite so overvalued. The United Kingdom’s large cap stocks (17.6x), Japan’s (22.5x), China’s (16.4x), Germany’s (27.0x) and Russia’s stocks (12.2x) can all be bought at relatively more attractive prices.

Another way to measure stock valuations is by the dividend yield. U.S. large cap companies paid a 1.53% dividend yield to their shareholders last year, which is lower than all other major nations except India (1.14%). Companies in Japan (1.89%), France (1.98%), China (2.02%), Australia (2.84%), Germany (2.55%), Spain (2.92%), Canada (2.93%) and the UK (3.77%) are all more generous with their shareholders.