- Countrieswithhigherrealinterestratesshouldhave
lower P/E ratios than countries with lower real
interest rates. - Countrieswith higher expectedreal growth should
havehigherP/Eratiosthancountrieswithlowerreal
growth. - Countries that are viewed as riskier (and thus
commandhigherriskpremiums)shouldhavelower
P/E ratios than safer countries - Countrieswherecompaniesaremoreefficientintheir
investments (and earn a higher return on these
investments) should trade at higher P/E ratios.
ILLUSTRATION 8.8: Comparing PE Ratios across Markets
ThisprinciplecanbeextendedtobroadercomparisonsofP/E
ratiosacrosscountries.ThefollowingtablesummarizesP/E
ratios across different countries in January 2006, together
with dividend yields and interest rates (short-term and
long-term) at the time.