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PE and Earnings Growth

August 28, 2009

We provide fundamental data here such as estimated PE ratios and earnings growth.

Author : iFAST Research Team

Untitled Document

Even when markets are extremely volatile, we often ask investors to go back to fundamentals. What are some of these fundamental factors that we recommend investors to review? Simply put, we are talking about earnings and valuations.

Price Earnings ratio or PE ratio is a relative measure of value. By comparing the price-earnings ratio across the several regional markets and across historical average, you would be able to get an idea of how 'cheap' the market is relative to other markets. We derive the PE ratio of the markets by using the index price level divided by an earnings integer (using estimated earnings growth figures).

Arriving at and using valuations

Data on estimated earnings growth of companies within the index covered are downloaded from Bloomberg on a regular basis. After downloading, we collate the data and calculate the estimated PE ratios and earnings growth. We may adjust the figures depending on the basis that we think that earnings growth estimates are overly optimistic or pessimistic.

However, market valuations and earnings growth cannot be the only two variables that investors look at when making an investment decision. Other variables come into place such as the economic stability, profit-generating ability of companies, the interest rate environment etc.

India Sectors

Sector returns based on index levels as at 11 Sep 2009	Change since 31 Aug 2009	2009 Return YTD	2008 Return
IT Sector - NSE CNX IT NIFTY Index	2.73%	116.94%	-54.56%
Infrastructure Sector - CNX INFRASTRUCTURE Index	-0.25%	45.70%	-
Banking Sector - CNX Bank Index	5.34%	56.52%	-49.29%
Service Sector - CNX SERVICE SECTOR Index	2.35%	54.44%	-
Source: iFAST Financial Compilations, Bloomberg Estimates.

	P/E Yr 2008-09	P/E Yr 2009-10	P/E Yr 2010-11	Earnings Growth 2009-10 (%)	Earnings Growth 2010-11 (%)
IT Sector - NSE CNX IT NIFTY Index	10.08	20.93	18.50	6.40%	13.18%
Infrastructure Sector - CNX INFRASTRUCTURE Index	14.91	16.82	14.26	1.42%	17.97%
Banking Sector - CNX Bank Index	7.09	13.06	11.14	3.89%	17.29%
Service Sector - CNX SERVICE SECTOR Index	11.11	17.04	15.02	4.40%	13.48%
Source: iFAST Financial Compilations, Bloomberg Estimates.

Major Global Economies & Sectors

The following tables cover index returns, estimated PE and earnings growth levels. The valuations will be updated on a monthly basis.

The tables below covers index returns, 5 year bond yields, earnings yield, estimated PE and earnings growth levels and the 5 year bond yields. This would be updated on a weekly basis.

Returns are based on index levels as at 11 Sep 2009 (in Local Currency Terms)	Change since 31 Aug 2009	2009 Return YTD	2008 Return	5 year Bond yield
USA (S&P 500)	2.17%	15.4%	-38.5%	2.36
Europe (DJ Stoxx 50)	2.43%	21.9%	-45.6%	2.52
Japan (Nikkei 225)	-0.46%	17.9%	-42.1%	0.61
Emerging Markets (MSCI EM)**	6.53%	57.7%	-54.5%	4.4
Asia ex-Japan (MSCI Asia ex-Japan)	6.84%	55.6%	-53.6%	3.2
Singapore (STI)	3.40%	52.2%	-49.2%	1.36
Hong Kong (HSI)	7.29%	47.1%	-48.3%	1.75
Taiwan (Taiwan Weighted)	7.49%	59.8%	-46.0%	1.13
South Korea (KOSPI)	3.76%	46.9%	-40.7%	5.08
China (HS Mainland Composite Index)+	7.96%	47.1%	-48.9%	2.89
Malaysia (KLCI)	2.90%	37.8%	-39.3%	3.75
Thailand (SET Index)	8.35%	57.3%	-47.6%	3.00
India (SENSEX)	3.81%	68.6%	-52.9%	7.23
Indonesia (JCI)	3.18%	78.2%	-50.6%	9.73
Technology (NASDAQ 100)	3.71%	39.1%	-41.9%	-
Source: iFAST Financial Compilations, Bloomberg.

	P/E Yr 2009	P/E Yr 2010	P/E Yr 2011	Earnings Growth 2009 (%)	Earnings Growth 2010 (%)
USA (S&P 500)	17.3	14.6	12.0	-8.4	18.9
Europe (DJ Stoxx 50)	15.0	12.3	10.2	-0.4	22.4
Japan (Nikkei 225)	38.3	18.6	15.3	NM	91.1
Emerging Markets (MSCI EM)**	17.9	13.4	11.1	-4.2	33.6
Asia ex-Japan (MSCI Asia ex-Japan)	19.7	14.7	12.2	9.0	34.2
Singapore (STI)	17.1	13.3	11.7	-10.1	28.9
Hong Kong (HSI)	20.6	17.0	13.8	0.0	21.1
Taiwan (Taiwan Weighted)	28.9	16.5	12.6	7.3	74.7
South Korea (KOSPI)	17.4	11.6	9.6	33.7	50.0
China (HS Mainland Composite Index)+	18.8	15.8	13.6	10.2	18.5
Malaysia (KLCI)	17.2	15.0	13.1	-2.7	15.2
Thailand (SET Index)	13.0	11.2	10.0	5.0	16.0
India (SENSEX)	18.6	15.9	13.5	-2.9	17.2
Indonesia (JCI)	21.0	18.1	15.5	11.8	15.7
Technology (NASDAQ 100)	20.7	17.2	14.6	-4.4	20.4
Source: iFAST Financial Compilations, Bloomberg Estimates.

Earnings yield

Earnings Yield 2009

5 year
Bond yield

Excess Yield

USA (S&P 500)

5.8%

2.4%

3.4%

Europe (DJ Stoxx 50)

6.7%

2.5%

4.1%

Japan (Nikkei 225)*

2.6%

0.6%

2.0%

Emerging Markets (MSCI EM)**

5.6%

4.4%

1.2%

Asia ex Japan (MSCI Asia ex Japan)

5.1%

3.2%

1.8%

Singapore (STI)

5.8%

1.4%

4.5%

Hong Kong (HSI)

4.8%

1.7%

3.1%

Taiwan (Taiwan Weighted)

3.5%

1.1%

2.3%

South Korea (KOSPI)

5.7%

5.1%

0.7%

China (HS Mainland Composite Index)+

5.3%

2.9%

2.4%

Malaysia (KLCI)

5.8%

3.8%

2.1%

Thailand (SET Index)

7.7%

3.0%

4.7%

India (SENSEX)*

5.4%

7.2%

-1.9%

Indonesia (JCI)

4.8%

9.7%

-5.0%

Source: iFAST Financial Compilations, Bloomberg Estimates.

Earnings yield is the reciprocal of the price-earnings ratio. It is the amount of earnings you purchase for every dollar worth of the stock (i.e. if a market has an estimated PE of 12X, the earnings yield is 8.3%)

*Japan and India PE forecasts are based on fiscal year ended March 2008, 2009 and 2010 respectively and all returns are in their respective local currency terms. **5 Year bond yields are indices derived from Bloomberg's option-free Fair Market Curves. The yield represents the composite yield of sovereign bonds around that maturity.

+The Hang Seng Mainland Composite Index (HSMLCI) comprises both H-share companies and red-chip stocks listed in Hong Kong. The selection criteria of the HSMLCI index are that they must be constituents of the Hang Seng Composite Index and they derive at least 50% of their sales revenue from Mainland China.

This summary is not to be construed as an offer or solicitation for the subscription, purchase or sale of any fund. No investment decision should be taken without first viewing a fund's prospectus. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Past performance and any forecast is not necessarily indicative of the future or likely performance of the fund. The value of units and the income from them may fall as well as rise. Opinions expressed herein are subject to change

The Research team is part of iFAST Financial Pvt Ltd.

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