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Tuesday

Jan192010

Country "PEG" Ratios

Tuesday, January 19, 2010 at 08:06AM

Many investors use the PEG ratio as a valuation tool these days because it puts a company's growth prospects into perspective along with the widely followed price to earnings ratio. The PEG ratio is the P/E ratio over the growth rate, and a PEG of less than one is generally considered good.

In this regard, we have created "PEG" ratios for a number of countries using the P/E ratio of each country's main equity market index along with 2010 estimated GDP growth rates. Just as with stocks, the lower the country PEG, the more attractive. As shown, India has the best PEG out of the countries we analyzed. It has a P/E ratio of 26.19 and estimated 2010 GDP growth of 8%. While its P/E isn't as low as a lot of countries, its growth rate is very high. China ranks second with a PEG of 3.66. The US ranks in the middle of the pack with a P/E of 24.53 and estimated GDP growth of 2.6%. At the bottom of the list sits Switzerland, Italy, and the UK, while Australia, Japan, and Spain have negative PEGs due to either a negative P/E ratio or negative estimated GDP growth.

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Reader Comments (9)

How about Israel's PEG ?

January 21, 2010 |

ruby

Fascinating.And what about Germany's PEG? Poland's?

January 21, 2010 |

Eric Bingen

Many Chinese companies are listed in Hong Kong. So they have the P/E of Hang Seng index (if a company is listed in both Shanghai and Hong Kong, its shares are most likely to be more expensive in Shanghai; the discrepancy is due to China's capital control policy), but the growth rate of China. So the logical conclusion is Chinese companies listed in Hong Kong are relatively most attractive: 22.65 / 9.4 = 2.41

It's easy to buy such an ETF in Hong Kong.

January 21, 2010 |

Wei Chen

Sorry, don't buy it. Some of the most risky due to their status as financial/business hubs at the top with lots of debt, some at the midway and bottom with commodities (Canada, Australia). I certainly would not write off Japan either. High Growth equals risk in my book and not value. A bit like the lie everyone is being told things are going to get better. Yeah, right, just after everything gets worse and most of us in our gut know it. In a world of food shortages and energy shortages why would one invest in Singapore, Hongkong. China is likely to keep all it own energy for itself plus import more. Crops are being wiped out left, right and centre in the northern hemisphere - and even as a breadbasket India is having difficulties feeding its own. Maybe India wants to own gold and silver so that it's currency is strong enough to buy in these things later. After all starvation has in history been caused more from poverty than lack of resources. Australia's farmland is also suffering. At least Canada, Australia do have farmland and commodities.

January 21, 2010 |

Nancy Spee

Query the P/E ratio for Australia. Don't have details but believe the figure would be high teens.Further,Australia might be seen as a commodity based economy, but tellingly, has one of the soundest banking systems of all (no sub prime, virtually no exposure to high risk nations in Europe).

January 21, 2010 |

Stan Carlyon

Do guide for Pakistani also, where and how to invest.

January 21, 2010 |

Parveen

Actually it's quite new idea to me.But professionals invent always new to fit the end they tailor the means.So no worry. They are always inventing something new to sell their own theories.In fact this the Q/E that is generating so much money that has to be invested elsewhere and the amount is so big that can not be utilized selling the old conventional theories like P/E so why not PEG, after all this there business of marketing. We can understand the smart guys has to be innovative.

January 22, 2010 |

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