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Where's The "Value"?
With the world seemingly of the belief that the US is the cleanest dirty (it is not), we thought it might be useful - should you have money burning a hole in your sidelines pocket that 'needs' to be invested in stocks - to at least comprehend how rich or cheap the rest of the world is. UBS global equity strategy heat-map below identifies the most expensive (red) and cheapest (blue) sectors across 20 regions (and the aggregate) in one easy pocket-size cocktail-party-usable cheat-sheet. The US currently is most expensive and intriguingly Australia the cheapest relative to their own historical valuations.
(click image for large legible version)
Notes;
Dark blue (very cheap) = current relative valuation < -1.5 standard deviations from historical average.
Light blue (cheap) = current relative valuation between < -1.5 and <-0.75 standard deviations from historical average.
No colour (neutral or N/A) = current relative valuation between > -0.75 and <+0.75 standard deviations from historical average.
Peach (expensive) = current relative valuation between > +0.75 and <+1.5 standard deviations from historical average
Red (very expensive) = current relative valuation between > +1.5 standard deviations from historical average
Source: UBS research.
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And which box in that chart isn't paper?
Thinking of going UK Telcos and Indian chemicals, what could go wrong? /sarc
And all the little children making beedies in India as well.
I was thinking of the Dow incident. It's kinda counterproductive.
At fist glance it looks like a wall chart logging employee attendance at a government / municipal admin office
Blue = full days work
Light blue = only partially available
Peach = absent
Red = off sick
No color = holliday
Which days are the porn days? Oh, all of them
I see 13 bible belts and 74 tornado alleys in that overview.
Australia is cheap now, really? Since when?
I will say that I've found some of the things being published here seem off to the original Zerohedge stuff. I wonder if there's been a change of management.
I'm a relative newcomer, but I'd suspect it's evolution rather than anything else. Businesses have to evolve to their markets, after all.
Yeah, agree some weird editorial positions nowadays...
Australia's valuations completely depend on a property bubble that has been untouched by the GFC. The fact that inflated property prices were maintained in Australia doesn't mean we are in better shape. It means we are in worse. The crash here will be truly epic.
Since financials comprise a third of the market, there will be a feedback loop between lower prices of financials and lower overall market price. Property and stocks are entwined Australian asset bubbles.
Also check out my newly updated presentation on fraud:
http://s1144.photobucket.com/user/_DrBenway/library/?sort=6&page=1
Adding that the overweighted FIRE sector is heavily concentrated into just 4 big banks, that financial "health" is mostly leverage of assets created by an equally concentrated mining sector, and that those two things combined represent over half of the entire oz economy and continue to kill off the rest (bye bye small business, manufacturing, etc).
Few nations have all their eggs in one basket more than oz so when China slips, oz falls hard. Seems to have already started over here on the west coast. Loads of for lease signs going up in established offices and staying up, meanwhile more new office blocks are being slapped together without care. Who's going to fill them?
Yeah, exactly! A minuscule and shrinking proportion of the Oz economy actually produces goods and services. If we exclude asset bubble merchants (real estate and finance) and selling/exploring dirt, there is nothing left anymore.
And regarding who is going to fill the empty blocks with skyhigh rents, good question. Kind of like the question of who is going to cash out sellers in the inflated stock and property market. Everyone is supposed to put money in them, they're supposed to grow an average of 10%+ per year, so where will the money come from?
I agree with what you and the poster above have mentioned, but what are your thoughts on how Australia will fair when the shit inevitably does hit the fan.
The way I see it (or rather try to, call it looking through rose coloured glasses if you will) is that we have a shit ton of natural resources, we do still have a manufacturing base including vehicle manufacturing plants - albeit on a small scale, and I'd like to think we have the know how and the people that if worst comes to worst we could create the things we currently import (which should theoretically mean more jobs from Engineers to metal workers to component designers/fabricators etc). We also produce more than enough food to feed ourselves.
Is there something missing from my reasoning?
Cheers
Yes there is something missing. Having resources and having profitable extraction are two different things. Much of the mining industry was unprofitable even at elevated resource prices, they were hype and share issuance schemes. Full of dead weight and fluff.
Between banks that are dependent on the twin asset bubbles of property/stocks and resource companies that at best are just unprofitable, what is left? How much of the Australian market and economy is involved with actually producing a good or service? Very very little. It's all bullshit.
Thanks for the reply. Appreciate it. I guess I should have said I was playing the devils advocate rather than looking at things through rose coloured glasses. But to take things a step further if our country were to become purely isolationist then we are in a better position to get by than a majority of others.. you mention cost, which is an important factor, but in a SHTF scenario and fiat dies temporarily (it will come back - it always bloody does in the end) then what is 'cost'... ie we do have what we need right here with no need for imports. Things might become rediculously expensive in real terms but we can still get what we *need*. Most other countries can't say the same.
I know what the true sistuation is - hell I've had it drummed into me how the system works for the past 25 years or more from my ol man but my eyes really opened when I was truly aware of the tech bubble that supposedly took everyone by surprise when it finally died in the arse; I'm just useless at explaining things to people and frankly have given up because they look at me like I'm missing a chromosome or something.
Cheers.. time for a beer!
I'm not so sure property prices in Australia are in a bubble. Yes, they are expensive, but that is because there is an artificially induced shortage. Yes, that is weird considering Australia is one of the least densely populated countries on earth. The fact remains that incomes are high, the population is growing reasonably fast and there are serious impediments to real estate development. Vacancy rates are below 2% and rental yields are about 5%. If there is a bubble in Australia, it is not being driven by real estate. If anything, real estate is more reasonably priced in Australia than in the US or the UK. Don't bet against real estate in Australia unless you expect the economy to collapse.
Lol. Where to start. The rise in house prices and thus paper wealth has been perfectly aligned with rising debt. Debt cause the boom, not any imagined 'housing shortage'. Your average yield figures are imaginary. Incomes have not risen close to the rise in debt and house prices. Property investors unconcerned with subsidized losses further has distorted the bubble. You are absolutely clueless about what will happen and I envy you.
Have been trying to buy a place in Melbourne for a few months - nothing inner city worthwhile for under a mill - stuff thats on the market is mostly crap and and soon as something half decent comes up it's snapped up for at least 100K extra from the quoted price.
I earn a reasonable amount of coin & bank is happy to give me a million bucks to be a slave for the next 30 years - if you boutght a house or 3 10 years ago in Australia you can get a more than a million bucks to blow on some shitty house in inner Melbourne.
People have to work twice as hard as they use to small business sliced to the bone - bloke at work reckons libs will get in economy wil come good again & property prices on the rise - he doen't see the global conectedness of the economy or the power of demographics - Australia is still growing - but I don't see how the all the debt can be sustainable if China goes tits up - gov & RBA can't let house prices go down - think they will go the way of JPY & US and have Zero rates in the next few years to squeeze the blood out of the people to feed the banks - but this time it's different.
Edit: Fuck you government creating asset bubbles & people stupid enought to comply in it - govenerment are a pack of pussies (They are here to help though)
I don't have a team of researchers on the ground to figure out the average yield and vacancy rates in Australia. Certainly some areas have higher/lower rates than others but that is how averages are formed. If the numbers I got are wrong, what are the real numbers? The market operates on a supply/demand basis. If supply is restricted and demand is booming, prices boom. The fact that it's so expensive to rent, and not just buy homes, means the prices are mostly legitimate. What you might argue is this: the mining boom in Australia was driven by a real estate bubble in China, which is being driven by QE in America. Therefore, australian real estate is a bubble within a bubble within a bubble within a bubble. At some point, it becomes impossible to separate what is "real" and what is "inflated". If everything is in a bubble, what would that even mean?
You're right that it is hard to get good data, partly because most housing data providers have their own incentives to inflate. Average gross yields according to RP Data is 4.3%, so net yields would be maybe half that. You can get 4.66% in a savings account.
http://www.asx.com.au/asx/markets/propertyIndices.do
Rents and incomes have NOT kept up to prices, not even close, you are just wrong here. ABS has quite good long term data on this on their website. Average Australian incomes and rents over the last 30 years have grown at just above inflation, while house prices have been inflated at a much higher rate.
http://www.abs.gov.au/ausstats/abs@.nsf/mf/5609.0
Regarding your supply/demand argument, you are also quite simply wrong. It was not shortage that drove prices, it was increasing debt. I agree that the whole windfall from mining fuelled the fire, but it did not start it, to paraphrase Billy Joel.
Yeah, I have been thinking the same thing.
In Iraq, there was an insurgent sniper with a large number of coalition kills. That snipers name was JUBA. But after analysis, the determination was made that JUBA was a group of guys...Chechen we believe. Anyways, looking at the Tyler posts, it makes sense that Tyler is more then one.
Ausralia is different.... it has Kangaroos and BIG HOLES IN THE GROUND. The rest is just clean open space... like between the ears of those who think nothing of taking a $500,000 Mortgage with 5% down. Our largest miners are Banks who take 25 Billion in profit from 23 million people..... and you think its Cheap... We have high incomes but huge Bills to pay for like.... wait for it..... paying people $4,000 to sucessfully Copulate.... thats right we have to pay a FUCKING BONUS to sluts with no brains to breed with males who have the combined intellegence of that of the brains of a smashed crab.
Lo fucking Laugh out loud....I chose my Avitar carefully to explain Australia... we are being screwed!
haha +1
Remember when Costello said "Have one for your family and one for the country". It really is farcical.
Edit to add: And lets not forget that to keep the housing prices inflated - as they were already to expensive - big gov steps in and hands over 5 grand cash to first home buyers which could be used as part of the deposit so there were many *zero* down home loans going around. Then they upped it to 10 grand for a while. For fucks sake what ever happened to letting the market drop in ackowledgement that prices were to high instead of keeping it up through tax payer funds?
Blasphemer.
F(n)=F(n-1)+F(n-2)
The Modern World-System
f-n f-erz...
Well played sir!
interesting that 'aggregate' column so blue.
Little does the creator of this heat map know that a 100+ years in the making fiat bubble is about to pop, so unless their "historical averages" includes data over many hundreds of years, the data is worthless.
oil and gas looking cheap
Because the world economy is growing faster and faster...
1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144. Shhhh
Historical average means what exactly? Last year? Decade? Century? Real or nominal? Average of which stocks exactly? The fact that the aggregate column is blue in this table has me calling bullshit on the whole thing.
P.s. Nothing in Australia is cheap. Just try living there. Epic housing bubble has flooded the economy with credit money, inflating the price of everything, stocks included.
Pretty much the absolute cheapest rentals going in Perth WA for a 1 bedroom flat is $280-$300 per week. It really is a two speed economy but not the way most people think it is; The two gears are forward and reverse.
S. Korea nice, blue, I am long on POSCO steel.
Oz cheap? Good luck with that strategy. China's falling through the floorboards and so is the Aussie dollar and everything else with it. US$100 invested in Oz should be worth half that in no time at all. LOL.
Hey Mobydick, your never going to make it in FX
I wanted to comment along this line as well.
I may reconsider after AUD drops some 30%.
and / for the most part...
the word "goods" is an oxymoron
Blow each bubble larger, claim it's a good time to buy and stocks are cheap. Then when all the muppets are in, pop it. Works every time.
The Fed has a group of PhD behaviorial scientist determining how to boost the animal spirits and swipe wealth from the lower 90%.
A few years ago I saw a quote in Barons about the 1930s Depression that I'll paraphrase...It went, "Most people lost their money in the first downward move. The Smart Money lost their money the second time down. The Really Smart Money lost their money the third time down."
In todays world, somehow this information feels relevent
AND this paid message has been brought ot you by....Choosa a category. Kind of remeinds me of when National Geographic came out with the 20= page spread on how it is "Peak Oil" which was one base that sparked off the big rise in oil and gas. While also checking, it was Shell being one of the main sponsors of that story. (Oh, but Oil and Gas is cheap. DUHH.) Should I go through the rest of the items listed?
Interesting chart Tyler, if this does not spell out some realities to people, or is it really too much for people to have any cognitive thinking?
Where is my beer, or wine, or booze, or pills, or weed, or whatever your fancy is?
Still, Thank-you Tyler.
Pens,
very pretty chart and from one of the world's most trusted sources that exists on fees and brokerage that make 2+2 really cheap.
looks like in the Aggregate column a mildly pinksih US causes the All Country world to also be mildly pinkish when all other countries are either blue or mildly bluish or no color..the US is less than 50% of the world stock market by market cap so not sure how this works.
consumer durables for Japan are deep red at 1.4 times book value whilst the same for the UK is unshaded for 7.6? check out india's pale pink of 17.8 and taiwans deep red at 2.2!
talk about white bias!!
this chart tells you that oil and gas is cheap anywhere, as are metals and mining (except those well known German mining companies..wtf???) and that Media and Pharma are expensive everywhere..but that there are no US tobacco companies!
it also tells you that the US market dominates every global sector and that other countries don't materially impact the overall sector global number..
UK div.telcos are 20 times book followed by indian tobacco companies at 14..whilst russian utilities at 0.2, german banks at 0.3 and french metals and mining at 0.4 are each only times book!!
i smell a rat..has this been run by the NSA/CIA?
PS
my bad, i re-read this many hours later: color shading indicates that the current price to book is so many standard deviations from the long term average...so need to look a little deeper..hmmm..evolving long term trends must be viewed as temporary to use deviations from an historic mean...would be better to present trends in price book in addition to deviations from historic averages or..perhaps...detrend the numbers and recalculate the colors.
I would like to now what discount rate they have used for Japan, or whether these are just simple PE's?
http://nipponmarketblog.wordpress.com/
they're using price-to-book
I noticed Russia was mostly no color. This i think indicates stability. Perhaps the designers of the ESM need to study how they accomplished that.
Would not it be nice to get the same chart as of 12 months ago and compare with the evolutions of the aforementioned (Bernanke) financial markets?