Global Markets: Real Yield and Earnings Yield

<body><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td> <font face="garamond, times new roman, times" mstheme> <p> </p> <p> </p> </font mstheme> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td valign="top" width="1%"><font face="garamond, times new roman, times" mstheme> <p> </p> </font mstheme></td><td valign="top" width="24"></td><td valign="top"> <p>This page uses frames, but your browser doesn't support them. </p> <p><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>Asset: Real Value</strong></font></p> <p><strong><em><font face="Arial Narrow" size="2" color="#00FF00">Buy when the coloured lines are at the low end of their range, </font><font face="Arial Narrow" size="2" color="#FF0000">sell when they are high</font></em></strong></p> <p><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>This tool is intended to show the attractiveness of each class of asset against on its own or compared to an average for all asset classes competing for the funds of domestic investors, after removing the effects of inflation. It is designed not only to show the current position but also to provide a best guess as to the future trend. This is useful for spotting extremes of over- or under-valuation. It does so by comparing the current yield or earnings yield against average returns on all assets. For comparability, indexes have been rebased to set year-end 1994 at 100. </strong></font></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">In each chart the index is shown in as </font><font face="Arial Narrow" size="2" color="#FFFFFF">the thick white line</font><font face="Arial Narrow" size="2" color="#C0C0C0"> on the right hand axis. The main explanatory variable, the valuation ratio is </font><font face="Arial Narrow" size="2" color="#FFFF00">the yellow line</font><font face="Arial Narrow" size="2" color="#C0C0C0">, which uses the left hand axis. Best Guesses for future development of the valuation ratios are also shown on the left hand axis, using </font><font face="Arial Narrow" size="2" color="#FF0000">the orange line</font><font face="Arial Narrow" size="2" color="#C0C0C0">.</font></strong></p> <p><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>Best Guesses suggest what would happen to the valuation ratios based on forecasts for interest rates, bond yields and company profits, assuming prices remain constant. The base level is the average for the last completed calendar year. Interest rates and bond yields are consensus estimates. Company profits are econometric forecasts by PIT. </strong></font></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Please note that comparisons between countries are of limited value owing to differences in the reporting of corporate profits. In general these ratios should be lower where there is a tradition of profit maximisation, as in Anglo-Saxon countries, than in other countries where the interests of outside shareholders may take second place to tax minimisation.</font></strong></p> <p><strong><font face="Arial Narrow" size="2" color="#C0C0C0">Where European currencies have been converted into Euros, the legacy government bonds and interest rates of the individual countries have been as the basis for historic data. Thus, for example, the long-term Bond ratio for Germany is based on Deutsche Mark bonds up to year end 1998 and that for France is similarly based on French Franc bonds in the past, but both are now based on a common set of bonds denominated in Euros. The PE ratios continue to be based on companies domiciled in for each country.</font></strong></p> <hr color="#FF0000"> <p align="center"><font size="2">[ <a href="global_asset_allocation_sitemap.htm" target="_top">Site Map</a> ] [ <a href="index.htm" target="_top">Home</a> ]<font size="2" face="Arial"><br> </font>[ <a href="Chart_Library.htm" target="_top">Chart Library</a> ] [ <a href="ChartLibrary_asset_allocation.htm" target="_top">Asset Charts</a> ]</font> </td></tr></table><table border="0" cellpadding="0" cellspacing="0" width="100%"><tr><td><font face="garamond, times new roman, times" mstheme> <p align="left"><font face="Arial Narrow" size="1" color="#C0C0C0">Copyright © 1999 Professional Investment Tools Ltd., authorised by the Financial Services Authority. An Independent Financial Adviser. Please read Financial Health Warning and Licence Agreement. UK laws apply exclusively. Principal sources: Consensus Economics, Corel Corp., FIBV, Global Financial Data, PIT, national governments and stock exchanges. Information and opinions are based on sources believed to be reliable and accurate. However PIT does not guarantee this to be the case, and does not accept liability for any loss arising. This is for information only and does not constitute a solicitation to deal in any securities. Opinions are liable to change. Past performance is no guarantee of future success. Last modified: October 22, 2002</font><font face="Arial Narrow" size="2" color="#C0C0C0"><strong>.</strong></font></p> </font mstheme></td></tr></table></body>