According to GuruFocus’ global market valuation pages, several emerging markets are undervalued as of Thursday based on Berkshire Hathaway Inc. (BRK.A, Financial)(BRK.B, Financial) CEO Warren Buffett (Trades, Portfolio)’s market indicator concept, which captures the ratio of a country’s total market cap to gross domestic product.
Buffett opinioned that the market cap to gross domestic product ratio is probably the best single measure of where market valuations stand at any given point in time.
Market indexes end shortened trading week flat compared to last week
On Thursday, the Dow Jones Industrial Average closed at 33,485.29, effectively unchanged from Wednesday’s close of 33,482 but up approximately 0.6% from last Friday’s close of 33,274.15.
Despite the Dow finishing slightly higher for the week, the Standard & Poor’s 500 Index and Nasdaq Composite Index slipped 0.1% and 1.1%. The markets are closed on Good Friday, ahead of the Easter weekend.
According to the Aggregated Statistics Chart, a Premium feature of GuruFocus, the mean one-week return for S&P 500 stocks is 0.21% with a median of 0.61%.
The mean three-month return for S&P 500 stocks is -0.49% with a median of -1.33%.
U.S. market remains modestly overvalued
The Buffett indicator stood at 115.8%, showing the U.S. stock market is modestly overvalued compared to its 20-year median value of 94.65%. The ratio is calculated based on a Wilshire 5000 Full Cap Price Index of $40.33 trillion, gross domestic product of $26.13 trillion and total Federal Reserve Bank assets of $8.70 trillion.
Based on the current market valuation level, the U.S. stock market is expected to return approximately 3.4% per year over the next eight years assuming a reversion to the 20-year median valuation ratio.
The predicted and actual returns chart also considers an optimistic case, which assumes a reversion to 130% of the 20-year median valuation ratio, and a pessimistic case, which assumes a reversion to just 70% of the 20-year median valuation ratio. Based on this chart, the implied market return ranges between -0.90% per year to 6.6% per year.
GuruFocus expanded the Buffett Indicator concept to other regions
GuruFocus applied Buffett’s indicator concept to several regions around the globe, include Europe, Asia and emerging markets.
Several emerging markets are undervalued based on Buffett’s indicator concept
As the above figure shows, markets around the globe offer a wide range of implied returns based on the market cap to global domestic product ratio. The chart considers the developed markets on the left and emerging markets on the right.
According to the chart, several emerging markets have high implied market returns based on the Buffett indicator concept, including Pakistan, Egypt, Brazil, Indonesia and Mexico.
The Buffett Indicator ratio for the Pakistan stock market stood at 14.57%, showing the market is significantly undervalued compared to the 10-year minimum ratio of 13.43% and 10-year maximum ratio of 31.11%. The implied market return of the Pakistan market is approximately 24.7% per year assuming a reversion to the 10-year median ratio of 22.39%.
According to the value screeners pages, a Premium feature of GuruFocus, several Indian and Pakistani stocks made key value screeners like the Ben Graham Net-net Screen, the Undervalued-Predictable Screener, the Buffett-Munger Screener and the Peter Lynch Screener. Table 1 lists the number of stocks making each value screener for each GuruFocus subscription region as of Thursday.
| Screener | USA | Asia | Europe | Canada | UK / Ireland | Oceania | Latin America | Africa | India / Pakistan |
| Ben Graham Net-net | 172 | 505 | 248 | 40 | 20 | 13 | 16 | 10 | 164 |
| Undervalued-Predictable | 215 | 240 | 525 | 24 | 68 | 7 | 179 | 27 | 58 |
| Buffett-Munger | 54 | 114 | 226 | 10 | 26 | 3 | 68 | 2 | 47 |
| Peter Lynch Screen | 59 | 79 | 85 | 5 | 6 | 1 | 27 | 9 | 18 |
| Greenblatt Magic Formula | 5135 | 14943 | 9174 | 625 | 1548 | 534 | 1678 | 362 | 4036 |
| Historical Low Price-Sales | 275 | 286 | 339 | 19 | 53 | 9 | 104 | 19 | 70 |
| Historical Low Price-Book | 279 | 302 | 335 | 26 | 59 | 12 | 96 | 22 | 83 |
| 52-week Lows Stocks | 639 | 1707 | 465 | 86 | 145 | 55 | 143 | 31 | 490 |
| 52-week Highs Stocks | 125 | 421 | 95 | 21 | 38 | 12 | 42 | 25 | 180 |
| High Dividend Yield Stocks | 123 | 64 | 266 | 8 | 25 | 14 | 56 | 19 | 21 |
Table 1
Egypt
The Buffett Indicator for the Egyptian stock market stood at 13.19%, showing the stock market is modestly undervalued compared to the 10-year minimum ratio of 8.3% and 10-year maximum ratio of 30.45%. The implied market return for the Egyptian stock market is 19% per year, assuming a reversion to the 10-year median ratio of 18.2%.
Brazil
The Buffett Indicator for the Brazilian stock market stood at 44.54%, showing that the stock market is modestly undervalued compared to the 10-year minimum ratio of 29.5% and 10-year maximum ratio of 72.37%. The implied market return for the Brazilian stock market is 15.1% per year, assuming a reversion to the 10-year median ratio of 49.87%.
Indonesia
The Buffett Indicator for the Indonesian stock market stood at 42.03%, showing the stock market is modestly undervalued compared to the 10-year minimum ratio of 33.22% and 10-year maximum ratio of 57.15%. The implied market return for the Indonesian stock market is 9.4% per year assuming a reversion to the 10-year median ratio of 47.71%.
Mexico
The Buffett Indicator for the Mexican stock market stood at 33.57%, showing the stock market is fair valued compared to the 10-year minimum ratio of 25.63% and 10-year maximum ratio of 45.09%. The implied market return for the Mexican stock market is 8.9% per year assuming a reversion to the 10-year median ratio of 37.05%.
