The domestic Australian equity market has been muddling through lately.
On a 12-month forward earnings basis the ASX200 is at 15.6 times and that is a similar valuation to the global MSCI All Country World Index (ACWI) of 15.7 times. However, when taking the difference in sector weights into account between the two indices – that is, by reweighting the MSCI ACWI using ASX200 sector weights – Heuristic Investment Services estimates the MSCI ACWI is trading at 13.9 times or a 12 per cent discount to the ASX200.
Heuristic also explains that forward Earnings Per Share (“EPS”) growth is higher offshore than in Australia. Europe and Emerging Markets have seen solid improvements in EPS growth expectations (albeit from a low base). The US is experiencing ongoing double-digit EPS growth, whilst Australia is experiencing low anticipated EPS growth in the financial sector and lower than expected growth in consumer discretionary and the consumer staples sectors.