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Monday, July 24, 2006

Global Equities: Too dependent on Financials & Energy?

By Yaser Anwar, CSC of Equity Investment Ideas

The huge weight in lower-multiple financial and energy stocks may be keeping global equity P/Es low.

Global equities look cheap relative to history, especially given today’s low interest rates.
The increasing concentration of global equities in the financial and oil & gas sectors may be one reason PEs have stayed low in recent years.

These two sectors typically sell at modest PEs, in part because of the historical volatility of their earnings and their lower long-term expected earnings growth.

They now account for about 35% of total market capitalization and more than 40% of earnings.
The bottom line is that the sectoral composition of the global equity markets is contributing to the current low PE ratio.

Source: BCA Research

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