Global Market P/E Ratios

Our Methodologies

The Valuation Score is a composite measure designed to evaluate the relative attractiveness of global equity markets. The framework combines three complementary valuation metrics that assess a market against its own history, its long-term earnings power, and the premium it offers over government bonds. This allows consistent cross-country comparisons while accounting for structural differences across markets. Detailed scoring parameters, sensitivities and weightings underlying the composite score are proprietary to 1 Finance Research.

Scoring Framework

The composite score is derived from three valuation components:

• P/E Ratio: Compares the market's current trailing P/E with its own 10-year average P/E.
• CAPE Ratio: Compares cyclically adjusted earnings (CAPE) with current trailing earnings (P/E). This shows whether today's earnings are running above or below their long-term normal level.
• Equity Risk Premium (ERP): Compares the earnings yield on equities, net of the real government bond yield (10-year yield less inflation), with the premium the market has offered at its long-term median valuation.

Each component is scored on a 0 to 100 scale, where 50 means the metric is in line with the market's own historical norm and higher scores indicate richer valuations. The components are then combined based on their relative importance within the framework. The framework balances historical valuation, normalized earnings and relative value against bonds, giving a more complete assessment than any single valuation metric.

Score Interpretation

The index valuation score is interpreted as follows:

• Below 30: Highly Undervalued
• 30 to 45: Undervalued
• 45 to 55: Fairly Valued. Scores in this range indicate valuations broadly in line with the market's own history.
• 55 to 70: Overvalued
• 70 and above: Highly Overvalued

Scores are updated monthly, as of the last trading day of the month.

References:

• S&P Global Market Intelligence LLC, via Simply Wall St
• Research Affiliates, LLC / Syzygy Asset Management, Asset Allocation Interactive
• 1 Finance Research