P/BV vs history is one of the better methods of measuring sentiment. For those concerned by the recent rout in S&P500, this chart might be helpful. To translate - There is another 32% down to neutral (not bearish) levels.
#SPX500
#SPX500
on the opposite side you have #Pakistan. To reach 10y average the market needs to rise 50%.
Valuation gaps rarely close overnight. No point in predicting car crashes. If US book values rise 10% a year over the next 5 years and S&P500 returns 3% a year (like 2001-2011) the gap will be closed in 2027. Does not have to be a drama, just likely underperformance for some time
Over the last 10 years S&P500 book value has risen by just below 5%/year. Environment for US corporates has been good so possibly a more accurate best case scenario for the decade to come.
During the same period #Pakistan's KSE100 book value has risen by 11% a year. That's in USD. In local currency it is just below 19% a year over 10 years.
The problem with sentiment is that it is about emotions, and they play tricks with you all the time. So you have to ignore the emotions, FOMO etc. Focus on the numbers, see what they tell you. Where are you more likely to earn normal returns the next 10 years. I'd say #Pakistan
If book values maintain their ca 10% (USD) rise per year and the valuation gap takes 5 year the market should theoretically return 20% a year only to get back to neutral sentiment. The relatively cheap currency (REER at 95) and decent attempts at reforms support slightly more.
At the end it is ALWAYS about stock-picking. But having a favorable hunting environment will support the long game. The thread above is the reason #Pakistan remains our highest weight in the fund.
• • •
Missing some Tweet in this thread? You can try to
force a refresh
