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We have limited evidence of a relationship between the CAPE level and the returns on shares over the subsequent decade outside of the US and Europe.
But what we do have generally conforms to the pattern seen in previous Newsletter: extremely high CAPE means, generally, low returns.
Australia
Average CAPE (1979 – 2015): 16.5
Source: (“Predicting Stock Market Returns Using the Shiller CAPE” www.starcapital.de/files/publikationen/Research_2016
Where is the Australian market now?
Given the past relationship across countries and the CAPE of 16.8 in December 2016, what does the model predict over the following 10-15 years?
Answer: average annual real return on Australian shares of 7.1%.
Canada
Average CAPE (1979 – 2015): 19.4
Source: (“Predicting Stock Market Returns Using the Shiller CAPE” www.starcapital.de/files/publikationen/Research_2016
Where is the Canadian market now?
Given the past relationship across countries and the CAPE of 20.5 in December 2016, what does the model predict over the following 10-15 years?
Answer: average annual real return on German shares of 5.7%.
Hong Kong
Average CAPE (1979 – 2015): 18.7………………………
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