May 06

Market Valuation Update

Source: RBA

The rise in global sharemarkets in the last 2 months has seen the PE Ratio increase from its bottom at around 10 to around 12 to 13. As the above chart shows this ratio valuation level is not too different to the average PE Ratio in the 1970s and for Australia, the 1970s and 1980s.

With the global adn local economy still forecast to shrink in 2009, company profits expected to drop significantly, the current PE ratio still does not look cheap and significant downside risks remain on valuation alone.

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