CAPE Ratio by Country: How to Find and Use Global Stock Valuation Data

TThe CAPE ratio is mostly considered useful Stock market valuation signal. So if you have got a globally diversified portfolio, you may well be occupied with good stocks Data that may assist you understand which parts of the world are undervalued and overvalued.

To that end, I’ve compiled one of the best global CAPE ratio information I can find within the table below.

CAPE ratio by country/region/world

Source: As shown within the column titles, compiled by

A rustic’s stock market is taken into account overvalued if its CAPE ratio is significantly above its historical average. The reverse also applies. Meanwhile, a CAPE value near the historical average could indicate that the market is fairly valued.

You should only compare a rustic’s CAPE ratio with its own historical average. Comparisons between markets are problematic.

If you click through to the unique sources linked within the table, you may check out much more countries and dates. All sources use MSCI indices. Cambria uses MSCI IMI (Investible Market Indices). Research Affiliates derives US CAPE from the S&P 500. You can even take the S&P 500 each day Shiller P/E temperature.

But what exactly is the CAPE ratio, what does it tell us and the way credible is it?

What is the CAPE ratio?

The CAPE ratio or Shiller P/E ratio stands for (CAPE).

CAPE is a stock market valuation signal. It is barely predictive of long-term stock returns. (The CAPE ratio is much more telling, with a heated debate about its accuracy).

Short:

• A high CAP Ratio correlates with lower average Stock market returns over the following ten to fifteen years.

• A low CAP Ratio correlates with higher average Stock market returns over the following ten to fifteen years.

The formula for the CAPE ratio is:

To evaluate a rustic’s stock market, the CAPE ratio compares stock prices and earnings figures relative to the load of every stock in a representative index. (For example, the S&P 500 or FTSE 100 indices).

But corporate profits continually rise and fall in keeping with an organization’s fortunes. National and global economic tides also fluctuate.

Therefore, CAPE tries to eliminate this noisy signal by the last ten years of earnings data. For this reason, CAPE can be referred to as P/E 10.

What can I do with global and country-specific CAPE ratios?

The CAPE ratio has three essential uses:

• Some use it as a market timing tool to discover trading opportunities. A low CAPE indicates an undervalued market. One that would return to the stratosphere with higher returns. Conversely, a high CAPE ratio can indicate an overbought market that’s about to say no.

• Similarly, CAPE and its inverse indicator, Earnings Yield (E/P), allow us to make more reasonable future return forecasts.

• High CAPE ratios are related to lower sustainable payout rates (SWR) and vice versa. So you may determine to regulate your retirement spending based on what CAPE says.

But is CAPE really suitable for these purposes?

Well, I believe try to be prepared to ask on your a reimbursement (you will not get it) should you try to make use of CAPE as a dowsing rod for market timing.

But are you optimizing your SWR based on CAPE’s prediction? There is nice evidence which may be worthwhile.

How accurate is CAPE?

It’s actually a sign of negative energy, like a lady in a wig saying you are a Pisces scuffling with a severe Saturn transit.

But the signal is as messy as fidgeting with goat entrails.

The table below shows that higher CAPE ratios correlate with worse ten-year returns. Note that there’s a wide selection of results:

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The general trend is obvious. But a market with a high initial CAPE ratio can still deliver decent 10-year returns. Likewise, a low CAPE ratio could usher in a decade of disappointment.

So with regards to hitting the mark, the CAPE ratio looks like this:

Portfolio manager Norbert Keimling dug deeper. His work showed that the CAPE ratio per country explains about 48% of trailing 10-15 yr returns for developed markets.

Source: Norbert Keimling,

You can see how lower CAPE ratios on the left side of this graph correlate with higher returns, equivalent to prom queens mating with athletes.

The trend can’t be denied.

Not all heroes wear a cape

Remove the nuance and you can turn these results right into a slogan:

However, animal spirits usually are not that easy to tame!

According to Keimling, the explanatory power of CAPE varies depending on the country and time period. For example:

• Japan = 90%
• Great Britain = 86%
• Canada = 1%
• USA = 82% since 1970
• USA = 46% since 1881

However, despite these differences, the outcomes are still adequate to put CAPE within the Platinum Group of stock market indicators. (It’s not a crowded field).

In his Research work Joachim Klement states:

Most traditional stock market forecasting models can explain lower than 20% of the fluctuations in future stock market returns. Therefore, we are able to consider Shiller-PE to be certainly one of the more reliable forecasting tools available to practitioners.

But I don’t desire to hold my investment hat on World CAPE’s 48% future statement.

No one should bet the home on a fifty-fifty call.

Do not use CAPE to predict the markets

Let’s have a look at a real-world example. Klement used the CAPE ratio to predict the five-year cumulative returns of assorted countries from July 2012 to 2017.

As a British investor, the next predictions caught my eye:

• Five-year cumulative real return within the UK: 43.8%
• Five-year cumulative real return within the US: 24.5%

The UK was roughly fairly valued based on historical CAPE values ​​in 2012. The USA seemed to be significantly overvalued.

But should you had overweighted the UK versus the US in 2012 based on this signal, you’ll have regretted it:

Source: Trustnet Multi-chart charts. Cumulative returns of S&P 500 vs. FTSE All-Share July 2012-17 (nominal)

From these returns we are able to see that the ‘overvalued’ S&P 500 slaughtered the FTSE All-Share for the following five years. (In fact, this also happened over the following ten years.)

This makes CAPE remind me of my mother’s warning that I could hurt myself if I jumped off the furniture.

In the tip she was right. But it took some time for reality to catch up.

Use the worldwide CAPE ratio to regulate your SWR

The CAPE ratio is best used as an SWR modifier.

Michael Kitces shows that a retiree’s initial SWR is strongly correlated to their initial CAPE ratio:

A high initial CAPE ratio leads to low SWRs. When the red CAPE line peaks, the blue SWR line decreases and vice versa.

William Bengen (the inventor of the 4% rule) agrees with Kitces’ findings:

And also believes that a high CAPE is a sign to lower the SWR.

However, all of those experts base their conclusions on the S&P 500 figures. Can we assume that the information is relevant to UK pensioners who’ve access to a globally diversified portfolio?

Yes, we are able to.

Keimling says:

A connection between fundamental valuation and the resulting long-term returns could be observed in all countries. With the exception of Denmark, a low CAPE of lower than 15 at all times resulted in higher returns than a high CAPE.

Klement also found:

Shiller-PE is a reliable indicator of future real stock market returns not only within the United States, but additionally in developed and emerging markets on the whole.

Michael McClung, writer of the superb book, also recommends using Global CAPE to customize your SWR.

The Spreadsheet The document included together with his pension book does the calculation for you. All you might want to do is provide the world CAPE ratio and an emerging market CAPE number. Our table above does this.

By the best way, I included three sources for the CAPE ratio in my table to indicate that there isn’t any point in selecting one pure number. Because there isn’t any such thing.

A dynamic payout rate method has now been developed based on CAPE.

Conquer the world

Finally, if you ought to use Bengen’s simpler table shown above, you will want to translate his work into global terms.

Bengen’s over/under/fair rated categories assume a mean historical US CAPE of roughly 16.

You can adjust these bands to your chosen average using our table.

Bengen’s work suggests that a CAPE value of 25% above/below the historical average is a useful rule of thumb for over- or undervaluation.

A base SWR of three% is not a nasty place to begin if you have got a world portfolio. Check out this post to further refine your SWR selection.

Be calm,