Country PEG Ratios

by Bespoke Investment Group

Yesterday we highlighted the stocks in the Russell 1,000 with the lowest PEG ratios.  Today we take a look at a different PEG ratio analysis.  A few years ago we decided to use the PEG ratio to analyze country valuations.  To do this, we use the P/E ratio of the country's most widely followed equity market index and the country's estimated GDP growth for the current year.  Just like with stocks, the lower the better for country PEG ratios. 

Below is a list of PEG ratios for 22 countries.  As shown, China tops the list with the best country PEG ratio at 1.94.  It is followed very closely by India at 1.95.  Both China and India have higher than average P/E ratios, but their GDP growth more than makes up for it at 9.50% and 8.50%, respectively.  Singapore and Russia, which rank 3rd and 4th, get to their low PEGs by having much lower than average P/E ratios and slightly better than averaged estimated GDP growth.  Spain, on the other hand, has a P/E ratio similar to Singapore and Russia, but its expected GDP growth is so low at 0.60% that it has the highest PEG ratio of all the countries shown.  Someone looking at just the P/E ratios for Spain, Singapore, and Russia would see a similar valuation, so this is a good example of where the country PEG ratio can help identify the more attractive country/countries.

For those wondering where the US stands in terms of PEG ratio, it's closer to the bottom of the list than the top.  However, the US does have the most attractive PEG ratio of the G-7 countries.  If you're looking to invest in developed nations, the US is the best place to be at least based on this valuation measure.   

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