The decline in equity markets this year has been of such magnitude that both the US and global equities now trade at valuation levels considerably below long term averages, according to Bill Dinning, chief investment officer at Waverton.
In his latest update, Dinning said: “Earnings forecasts have fallen again this month. Globally [earnings per share] are forecast to grow 1.7 per share this year, down from 3.3 per share a month ago and 4.4 per cent two months ago.
"Some of the recent weakness is due to the stronger US dollar. The US market’s PE ratio recently moved down to 15.4, below its average of 16.4. The rest of the world also remains in aggregate below its historic average PE.”
He added: “Several markets, including the UK, are trading at meaningful discounts to their own historic averages suggesting that the market is already sceptical about earnings estimates outside the US
"The PE ratio for the US market is 15.4 times. It is now below its 20-year average of 16.4 times.
"The world outside the US now trades at 10.8 times earnings, a meaningful discount to its 20-year average of 14.1.”
But while equities are cheap based on those measures, Dinning feels there was considerable uncertainty.
But he feels valuations are close to reaching the level where much of the uncertainty is now priced in, particularly outside of the US market.
He said earnings per share expectations in the US remain optimistic compared with other parts of the world.
david.thorpe@ft.com
