Warren Bufett`s favourite metrics is market cap as a percentage of gross national product, he thinks when its down to about 75% or so, it’s a screaming buy, its time to go in. How would Asian stock markets compare?
Basically I look at markets around the world, its very clear that the US market is not particularly cheap, specially if you take the Dow Jones, the S&P in real terms, with inflation adjusted or the market cap in the US as a percentage of GDP, in 1982, 1974 and other major lows it was around 25 to 30% of GDP and now its close to 100% actually and not at 75%; and by historical standards is still very high.
In the case of Asia we have many markets that are, in the case of Japan at 30 years low, basically at the same level as in 1981, and Korea is at the level it was in 1988, and if you look at the dividend yield in Asia compared to the bond yields, it`s around 3 times higher, so even thought we will have dividend cuts for sure, as a shareholder you begin to be paid to waiting.
I don`t think that markets will necessarily run away into a new bull market, but we have fallen so hard in commodities and in emerging markets that we can easily have a 30% rebound here.
