Update 13 July 2010: Chart 3 added following UKVI's comment below.
For many months now I have been showing the PE10 for the ASX200 and the S&P500 however what I have always been looking for is a cyclically adjusted PE ratio dataset for the UK FTSE100. In shorthand a FTSE100 CAPE or FTSE100 PE10 depending on your preference for acronyms. Unfortunately a complete dataset has been impossible to find. I have therefore spent many hours constructing one from pieces of data taken from Motley Fool Discussion Boards, the Financial Times marketdata and Yahoo Finance. I therefore can for the first time present a chart of the FTSE100 PE10 and for good measure I’ll throw in the Real (inflation adjusted) FTSE100.
Unlike my other datasets that I show regularly I could this time around only find data going back to 1993 and in a limited form. It would have been nice to go back to the start of the FTSE100 which was the 3 January 1984 but it’s the best I could do. If any readers have data going back further than this it would be appreciated if you were prepared to share it. This has forced some compromises (plus some other decisions that had to be made to construct the data) including:
- Each month’s data point is taken from the first trading day of the month.
- The first 10 years of data is not a true PE10. Unlike my other equity market PE10 charts which start 10 years from the first real equity point this time I have been forced to average in. For example the first data point is only the real earnings for 1 month rather than 10 years, the fourth data point is the average real earnings for 4 months etc. This continues until the 120th month when the true PE10 is calculated. Not perfect I know but the best I can do. This is significant and needs to be kept in mind when reading the chart. I can’t say I thought of this technique and so I pass my thanks to UK Value Investor’s Diary who introduced me to this idea.
- I have used the CPI as my inflation adjuster. There could be more appropriate inflation adjusters and I’d like others opinions if they have a better measure. Why did I pick the CPI? The reason was that both my ASX200 PE10 and my S&P500 PE10 both use the respective countries CPI so it might in the future allow for better comparisons between countries.
So that’s all the boring stuff out of the way. What is it showing? Key points are:
FTSE100 PE10 = 12.0 which is down from 13.0 last month.
FTSE100 PE10 Average = 20.0.
FTSE100 PE10 20 Percentile = 17.0
FTSE100 PE10 80 Percentile = 23.8
FTSE 100 PE10 Correlation with Real FTSE100 Price = 0.70
My second chart today shows how the PE10’s of the 3 countries that I know track compared. It’s interesting to see just how over valued the US became compared to the UK and Australia using this measure.
As always do your own research.
- July 2010 price is the 01 July 2010 market close of 4805.8.
- UK inflation data from June and July 2010 are estimated.