December 11, 2019

UK Election Chart of the Day: Equity Valuation

by Tajinder Dhillon.

U.K. equities are trading slightly below their long-term average based on a 12-month forward P/E basis.  Looking at the Datastream United Kingdom Index consisting of approximately 550 constituents, the current forward P/E is trading at a 12.8x multiple compared to its long-term average of 13.3x, yielding a 4% discount.

The Labour government was in power during two monumental events during the last 20 years.  The tech bubble of 2000 saw equities balloon to a 22.1x multiple, in sharp contrast to the financial crisis of 2008 which saw equities trade at a 7.4x multiple.

As seen in Exhibit 2, U.K. equities are the 2nd cheapest out of the G7 group.  Since the Brexit vote of June 2016, the forward P/E ratio has declined from 14.4x to a current 12.8x, dropping 11.1%.

Exhibit 2: Forward P/E Ratio of G7 Countries

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