While the US has the most optimistic earnings outlook, it is the market which also has the highest valuation with a forward PE ratio of 17x earnings which is considerably higher than Europe (14.9x), Japan (12.2x) and emerging markets (11.9x). Better economic growth should help US earnings later this year. However, the outlook for Europe and the emerging markets seems more clouded. Japan faces the multi-headwinds of stalling growth, high debt, poor demographics, a central bank which seems fresh out of ideas and a government with no political capital left to implement painful reforms. Looking ahead, persistent Yen strength over the medium-term will be just another factor weighing on Japanese EPS growth. Although this market has a very low valuation relative to the past 25 years, it appears to be a value trap, and investors could contend themselves that there are better growth and opportunities in other markets. I think Japan is going to be the next major stress point for the global markets, unless Brexit gets there first. (VIEW LINK)
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