Local stocks not too dear
THE AVERAGE price:earnings ratio of the JSE all-share index is now 16,2 – a reasonable click above its 20-year p:e average of 13,8. That’s largely why many armchair analysts say South African shares are currently overpriced.
Yet when you plot the expected p:e ratios of the companies in Morgan Stanley Capital International’s (MSCI) SA index alongside their expected earnings growth for 2007, and then compare that with the same variables for other emerging markets, SA shares hardly look overvalued.
Perhaps that’s why emerging market gurus such as Mark Mobius labelled the 51,3% premium paid for Edcon by US private equity firm Bain Capital LLC as “too low” while SA shareholders felt it was more than generous.
Could it be that foreigners are using a more accurate valuation model than our homegrown analysts?
MSCI SOUTH AFRICA INDEX VS OTHER EMERGING MARKETSSource: Merrill Lynch
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