Performance of the broadest global equity index MSCI All Country World Total Return since the beginning of the year is -12.3%. It is always useful to look at how the individual fundamentals contributed to this overall return.
Decline of the valuation indicator P/E (price-to-earnings ratio) has had the biggest impact. P/E has fallen by 10.6% since the beginning of the year, when it was 19.9 and is currently 17.9. Thus, global stock markets have significantly cheapened after the sell-off in February and March. Global stock markets are therefore currently trading at 17.9 times annual earnings.
Dynamics of corporate profits is the second decisive fundamental factor. These have been declining already for some time, and specifically since the beginning of this year, global corporate profits have fallen by 2.2%. In the coming months, this downward trend will be even stronger. Therefore if stock price will not change much, the profound decline of corporate profits will push P/E valuation significantly upwards. The third fundamental factor is the realized dividend yield, which has been 0.5% since the beginning of the year.
Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.