Average International P/E Ratios by Country
by Josh Staiger
I recently sent the following inquiry to Vanguard:
I currently hold a position in the Vanguard Emerging Markets Stock Index (VEIEX). I notice that on the research portion of your site, you do not prominently display the average weighted P/E ratio for this fund, as you do many of your domestic funds.
If possible, I would like to know this information. Is there a reason why it is not available?
To which Suzanne from Vanguard replied:
We do not provide P/E Ratios for our international funds. There are a couple of reasons involved in not reporting these characteristics for international funds. One is a matter of operation. These statistics are not available in time for disclosure in our regularly scheduled reports. The second reason and the more important issue is that these aggregate statistics for international funds can be difficult to interpret and often misleading. These statistics should be looked at on a country-per-country basis. For example, the Japanese market usually has a much higher P/E than that of the UK. If a portfolio's aggregate P/E is high, that could simply mean that it has a large exposure to Japan-- and not that it has a growth bias. In other words, an international fund's aggregate characteristics sometimes are more attributable to its country selection than to its investment style.
I don't buy the fact that a fund company that manages billions of dollars of assets has difficulty gathering this data, but beyond that this answer still struck me as odd. Is the average P/E ratio for the Japanese market really that much higher than the rest of the world?
After plenty of digging (I assure you, information on this topic is not readily available), I managed to find this article, from which I pulled the following numbers:
| Country | Price/earnings ratio of major stock index (2004 est.) |
|---|---|
| Hong Kong | 17.580 |
| Thailand | 10.624 |
| Brazil | 10.942 |
| Korea , Rep. | 11.415 |
| China | 39.397 |
| Indonesia | 12.559 |
| Russia | 6.344 |
| Italy | 17.866 |
| Malaysia | 15.165 |
| Singapore | 13.776 |
| USA | 17.499 |
| Netherlands | 11.926 |
| Taiwan | 12.827 |
| Japan | 31.606 |
| Germany | 15.064 |
| UK | 18.711 |
| France | 14.518 |
| Mexico | 13.889 |
| Canada | 16.727 |
| South Africa | 11.602 |
| Spain | 15.043 |
| Portugal | 19.700 |
| Switzerland | 15.717 |
It appears that Suzanne was right. We can see that both the Japanese and (particularly) the Chinese markets are trading at very high multiples compared to the rest of the world.
At first I thought I was missing something here. How is it that a dollar of profit is worth nearly twice as much when it comes from Japan as it is when it comes from the US?
However, when we consider that the Japanese economy is overweighed with growth (technology) companies, combined with the explosive growth potential of Asia, this does not seem terribly unreasonable.
And obviously China is a huge orgy right now.
So this brings us back to the Efficient Market Hypothesis, and we can continue to go about our business.