Revealed: The world's cheapest stock markets 2015

We update our stock market map ... and find there are only three 'cheap' stock markets, down from seven a year ago

As the chart shows, just three countries – Japan, Russia and Turkey – out of 35 assessed now meet our bargain criteria.

CLICK HERE FOR A LARGER VERSION OF THE GRAPHIC ABOVE

P/e ratioThe most widely used calculation, this ratio compares a company’s value with its profits. To work it out, you take the share price and divide it by the annual earnings-per-share figure.The lower the figure, the cheaper the share. 

Cape ratioThis is the p/e ratio, but with a twist. Instead of using earnings over 12 months, this measure takes the average earnings figure over the previous 10 years. The Cape ratio strips out short-term anomalies, addressing the criticism levelled at the p/e that it is based on a “snapshot” of companies’ profitability, taking no account of the business cycle. Our regular columnist James Bartholomew, see below, has used Cape to inform some of his investment decisions. 

Price-to-book ratioInstead of looking at earnings, this ratio examines how a company’s market value compares with the value of its assets – the value of all the buildings, machinery and intangible assets if sold today. As with the other two measures, a low score signals that a stock market or share is undervalued, with a figure below one suggesting that the company is worth less than the sum of its parts.

Russia and Japan, still viewed as cheap on all three measures, have also performed extremely well, up 90pc and 20pc. But both markets are at least 30pc away from previous peaks. Turkey, however, has made little headway, up just 2pc. 

Out of the three cheap countries identified, Japan was named as the standout long-term opportunity by Laith Khalaf, a senior analyst at Hargreaves Lansdown, the investment broker. 

“Cheap stock markets can become even cheaper, particularly niche markets such as Russia and Turkey, so it is prudent to take a step back and consider the pros and cons of investing in each region,” he said. 

The cheapest way to play the market is through a tracker fund or an ETF, which follows the ups and downs of a stock market index. Fidelity Index Japan, which costs 0.12pc a year, is the cheapest.

DYI Comments:  This blog as you may well know is a big fan of Vanguard Funds.  Their Pacific Stock Stock Index Fund Admiral symbol VPADX is not a pure play but currently holds 58% in Japan.  Here is the break out from their web site.

Japan 58.0%  Australia 17.7%  Korea 10.7%

Hong Kong 9.5%  Singapore 3.6%  New Zealand 0.5%

Other 0.0%

For 100% pure play for Japan take a look at the Matthew Asia Funds their Japan Fund symbol MJFOX is a stand out.

DYI

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Massive QE over the years from the Fed's, Bank of England, European Central Bank, Bank of China, and Bank of Japan has spawned asset bubbles world wide especially in real estate plus stock and bond markets.

Australia’s “Largest Housing Bubble on Record” in 4 Charts

 Australia’s households are the third most indebted in the world, relative to GDP, after having passed the Netherlands in 2014. Aussies are now closing in on the leader of the pack, Denmark, and second place, Switzerland. 

“Given the current boom in Sydney and Melbourne, it is possible Australia will soon exceed Switzerland to become 2nd, and with enough time, perhaps 1st,” write Lindsay David and Philip Soos in a new report by LF Economics (entire report for free here). 

By the end of 2014, Australia’s unconsolidated household-debt-to-GDP ratio reached 118%. But it’s not because Aussies ran up their credit cards. Personal debt (credit cards, auto loans, and personal loans), after soaring in spurts and starts from 5% of GDP in 1976 to 13% of GDP in 2007, has since plunged back to just over 8% GDP, the lowest since the mid-1990s. 

What they did run up was mortgage debt. It funded, as the report puts it, “the largest housing bubble on record.” 

 

In both Melbourne and Sydney, the ratio of home prices to household incomes, a measure of housing affordability, has more than doubled since the mid-1990s, showing just how rapidly home prices have run away from incomes:

DYI Comments:  At 9 and 11 times income(Melbourne, Sydney) as compared to the U.S. at 3.3 times income paying off the home would be insane.  My recommendation for a homeowner down under is to put your house up for sale and hopefully find a greater fool to buy your home and then rent.  For young couples looking to purchase that first house, hold off and rent, plowing on as much savings into ultra conservative investments.  Why ultra conservative investments?  For when this bubble pops Australia will endure massive deflation.  Return of your principal will be far more important than the return on your principal.  I wish the Australian well they are going to need it!

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The $6.5 Trillion China Rally That’s Making Stock-Market History

It’s enough money to buy Apple Inc. eight times over, or circle the Earth 250 times with $100 bills. 

The figure, $6.5 trillion, sums up the value created in just 12 months of trading on Chinese stock exchanges -- and why some see a rally that’s gone too far. 

As China’s boom surpasses the headiest days of the U.S. Internet bubble, signs of excess are cropping up everywhere. Mainland speculators have borrowed a record $348 billion to bet on further gains, novice investors are piling into shares at an unprecedented pace and price-to-earnings ratios have climbed to the highest levels in five years. The economy, meanwhile, is mired in its weakest expansion since 1990. 

“We have a wonderful bubble on our hands,” said Michael Every, the head of financial markets research at Rabobank International in Hong Kong. “Of course, there’s short-term money to be made. 

But I fear it will not end well.”

1929 Crash

At the height of Japan’s rally in 1989, for example, the nation’s market capitalization reached 145 percent of gross domestic product, versus an estimated 87 percent in China today, according to data from the World Bank and International Monetary Fund. The Dow Jones Industrial Average climbed for five straight years in the run-up to the crash of 1929, adding more than 200 percent. 

On top of price appreciation, China’s $9.7 trillion market is getting a boost from a wave of new share sales. Mainland companies have raised at least $56 billion this year, according to data compiled by Bloomberg. 

Optimists are betting that China’s Communist Fascist Party will keep the rally going to help more businesses tap the stock market for fresh capital. Debt levels for Shanghai Composite companies reached the highest since at least 2005 in January.

DYI Comments:  I've been saying for over 5 years that China is a paper tiger and will experience their version of our great depression during the 1930's.  China is NOT a single country but an empire with parts that could very easily leave Beijing's nest during an economic deflationary smash.

Their western Autonomous Regions would be up for grabs first to be incorporated into their Muslin brothers (with the possibility of Indian as well).

Not only western China, Macau, Hong Kong, Shanghai, would far prefer to be be under British or European rule with their excellent property, voting, personal rights, along with courts of adjudication for criminal and contract law.

The southern and south west regions have far more in common with Vietnam, Laos, and Burma (and India).

No doubt for this blogger China will have their 1930's version.  The question is; will the Empire hold together?

DYI