JSE is not THAT expensive, is it?

More than half (53%) of PSG clients believe the market is expensive, a February PSG Wealth survey of value says.

But thorough research and analysis reveal the market’s valuation is in line with its long-term average.

The valuation of the top five market cap stocks on the FTSE/ JSE All Share index (Alsi) mask wider value.

When the top five are excluded, the forward price-to-earnings (P/E) ratio of the index is the 10year mean.

Stocks on the Alsi look expensive if you use current P/E ratios. On May 24, shares on the Alsi were trading at P/E ratios of around 19. In the last quarter of 2016, shares in the Top 40 Index were trading at P/E ratios of around 30.

P/E ratios seem expensive because they have been inflated, largely on the back of an earnings collapse.