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What is a P/E Ratio? The Price-to-Earnings (P/E) ratio is a indicative valuation metric that measures a company's current share price relative to its earnings per share (EPS). It is relatively simple calculation and is simply worked out through dividing the current share price by the Earnings per share.

There are two common variations of the P/E ratio: Trailing P/E: Based on the past 12 months of earnings. Forward P/E: Based on analysts' forecasts of earnings for the next 12 months. Why is it Potentially Important?

Valuation Insight: The P/E ratio may help investors assess whether a stock is overvalued or undervalued relative to its earnings. In simple terms, a high P/E ratio might indicate that the stock is overvalued, while a low P/E ratio could suggest undervaluation.It is not only the number itself which may be important but also the underlying trend of how PE ratio may be decreasing or increasing which is worth consideration. Comparative Analysis: By comparing the P/E ratios of different companies within the same industry, it is suggested that investors can identify relative bargains or expensive stocks.

This issue of the same industry is an important point. If we look at the PE ratio of the S&P500 as a whole the forward 12-month P/E ratio (August 2023) for the S&P 500 is 19.2 (For context the 10 year average is 17.4).However, to look at this number as a benchmark for valuation judgements on a specific company is flawed as if we look at the trailing and forward PE of individual sectors it tells a very different story. The table below provides this (as of August 2023) to illustrate this point (source: Finviz.com).

PE Forward PE Energy 7.21 9.55 Financial 13.41 12.34 Basic Materials 13.74 17.02 Utilities 18.57 2.97 Industrials 20.56 16.45 Healthcare 20.9 17.51 Consumer Cyclical 22.45 20.93 Consumer Defensive 23.08 20.49 Communication 24.9 16.98 Real Estate 30.72 27.64 Technology 34.33 22.62 As you can see, there is a gross disparity between sectors. Comparing two companies' P/E ratios is like comparing apples with oranges. Therefore, consideration against the sector norm is a far more legitimate comparison than against either the index as a whole, any random stock, or an arbitrary number e.g. above or below 10.

Market Sentiment: The P/E ratio also reflects market expectations to some degree. A high P/E ratio may indicate optimism about a company's growth prospects, while a low P/E ratio might reflect pessimism. However, many would question using P/E ratios alone as a measure of this without the context of other data.

Viewing a P/E ratio without some reference to growth numbers and trends is an approach that is unlikely to yield good outcomes. Factors Contributing to a Rising or Falling P/E Ratio Earnings Growth and Stock Price Movement: Although there are minute-on-minute small fluctuations in price, and thus P/E ratios, clearly the most influential time in terms of moves in P/E ratios is that of earnings releases. At this time, both trailing and expected forward EPS will be recalibrated, and significant changes may be seen in the P/E ratio.If a company's earnings grow and the stock price stays the same, the P/E ratio will fall, reflecting a company at value.

Conversely, if earnings fall and the stock price rises, then the P/E ratio will rise, potentially indicating overvaluation. It would seem logical, if earnings are imminent, to reserve judgment on valuation until after any such news. Market Expectations: If the market becomes more optimistic about a company's growth prospects, investors might be willing to pay more for the stock, increasing its P/E ratio.

For example, with a policy shift to increase renewable energy, it would be reasonable to expect forward growth expectations to rise across the board for all stocks in that sector, rather than perceiving a particular stock as overvalued.However, if growth and P/E ratio are rising because of a specific competitive advantage for that company, then it is not necessarily indicative of overvaluation despite the high P/E. Judging based on a high P/E ratio alone could lead to significant missed opportunities. Once again, this reiterates the need to look beyond just a simple P/E ratio to make judgments.

Interest Rates: Lower interest rates often lead to higher P/E ratios, as investors are more inclined to invest in equities. Conversely, higher interest rates usually lead to lower P/E ratios, as bond yields become more attractive than the dividend yield offered by many stocks, and interest rate hikes potentially impact sales, the cost of servicing debt, and subsequent potential impact on earnings. Traditionally, growth stocks are likely to be more interest-rate-sensitive, and therefore the impact on stock price and P/E ratios may differ from sector to sector, and depending on whether business is conducted locally versus globally.

Economic Conditions: A strong economy might lead to rising earnings expectations and P/E ratios. Conversely, economic uncertainty or recession might cause P/E ratios to fall. Key data trends are likely to be a useful gauge.

This is particularly the case for the “big” data points such as GDP, CPI and jobs data. Other Company-Specific Factors: Changes in management, product launches, legal issues, or other company-specific news can affect both the current stock price and anticipated effect on earnings, thus impacting the P/E ratio.As many of these types of corporate events are unpredictable, when they do occur, it merits not only an evaluation of any prospective investment ideas but also of currently open positions when the P/E ratio may have been part of your decision-making process. In summary, although the P/E ratio is noteworthy for many investors, judging value and entering a stock with a low P/E ratio requires a rigorous and systematic approach, blending both quantitative and qualitative analysis of the issues discussed above.

A simple approach of comparing the P/E ratio of one company against another is unlikely to produce good outcomes. Focusing purely on this may mean that a low P/E ratio may be indicative of a company whose outlook is far from favourable, subjecting you to risk. Conversely, a high P/E ratio alone may not only indicate overvaluation compared to the current price but may also signify a company whose growth prospects are very positive.

Ignoring this based on the P/E ratio alone may result in missing out on opportunity. For those interested in a further exploration of evaluation of stocks with a low PE ratio, we have published an article that may help. “Look before you leap..FIVE reasons why a low PE may be a reason NOT to jump in” and can be accessed HERE

GO Markets has won three awards in this year’s Global Forex Awards; Best Forex Fintech Broker - Global Best Forex Trading Support - Asia Most Trusted Broker - Europe The Global Forex Awards recognise forex and related businesses from around the world, “who are pushing the boundaries of innovation in retail forex trading solutions.” GO Markets COO & Director Khim Khor said, “We are very pleased to receive these 3 awards, which recognise the efforts our business is making to constantly improve our services globally. At GO Markets, we are committed to providing outstanding trading experience and customer service to all our clients globally. Being recognized as the Best Forex Fintech Broker also highlights our dedication to innovation and progression.

We hope these awards will help to solidify our market position as the most trusted global broker." Hosted by Holiston Media, the awards are now in their fifth year. With 58 categories, the awards highlight those businesses at the forefront of cutting-edge technology, low-cost trading, comprehensive market research tools, advanced educational programs and world-class customer service for direct to consumer/trader businesses. “Well done to each and every one of this year’s winners. They have proven they are at the very top of their game in the global forex retail industry.

The Global Forex Awards 2022 - Retail are a true benchmark for success that will not only impress potential new customers, but will also boost existing client comfort and loyalty, ” said Mike Boydell, Director of Holiston Media. GO Markets Global Head of Operations, Yaazdee Jaunbocus, accepted the awards at a celebration in Cyprus last week. “It’s fantastic to see GO Markets recognised on a global stage, with acknowledgement of our customer support and trustworthiness as a business; two areas in particular that we focus a lot of our attention on. It was a pleasure to attend the awards ceremony last week and accept these awards on GO Markets’ behalf,” said Yaazdee.

Learn more about the Global Forex Awards here.

As traders and investors one of the important facts you need to get to grips with is the difference between Consensus (sometimes termed “expected”) and actual data. Variations in these can have a profound impact on asset prices and so are often part of your decision-making. In financial markets, the "consensus" refers to the average or median expectation of market analysts, economists, or other experts regarding a specific economic indicator or financial metric, such as corporate earnings, or market data that is indicative of economic growth or contraction.

The "actual data" refers to the real value of that indicator or metric as it is released by the relevant source, such as a government agency or a company. The market response to the difference between consensus and actual data can vary significantly and depends on several factors: Surprise Factor: The extent to which the actual data differs from the consensus is often referred to as the "surprise." If the actual data is significantly different from the consensus, it can lead to a stronger market response. A larger surprise could result in more pronounced market movements.

Direction of Surprise: Whether the actual data is better or worse than the consensus also matters. For example, if economic data is better than expected it might lead to positive share market reactions, as it indicates a healthier economy. Conversely, worse-than-expected data could lead to negative market reactions.

However, it is worth pointing out that this is a little simplistic, as it is the reality that different asset classes may respond in contrary directions. A prime example of this would be data that impacts positively on the USD (e.g. higher than expected interest rate decision), is likely to have the opposite impact on gold price. Importance of the Indicator: Some economic indicators have a more significant impact on market sentiment and investor behaviour than others.

For example, employment numbers, GDP growth, and central bank interest rate decisions are typically closely watched and can trigger significant market movements. Conversely, auto sales numbers as an example. are less likely to impact on the market overall but may impact primary on car manufacturers. Most economic calendars have a grading of market sensitivity to data to help the trader.

Underlying Market Sentiment: Market sentiment, which includes factors like investor psychology, risk appetite, and current trends, can influence how traders and investors react to economic data releases. Positive sentiment might mitigate negative reactions to negative surprises, or vice versa. You may hear some market commentators refer to ‘good news’ really being ‘bad news’ for the market.

For example, in an interest rate sensitive environment, strong jobs data, although logically one would assume is good news may mean it is more likely that a central bank is in a more favourable position to raise rates and therefore may have a negative impact on the stock market. Economic Context: Related to the above the broader economic and geopolitical context also plays a role. Market participants might interpret data differently based on prevailing economic conditions, global events, or the current stage of the business cycle.

Long-Term vs. Short-Term Impact: The immediate market response to data releases can be volatile and short-lived. However, if the data implies a shift in the underlying economic trajectory, it might have longer-term effects on market trends.

Therefore, if a longer-term investor rather than short term trader you will view economic data releases very differently. Sector and Asset Class: Different sectors and asset classes can react differently to economic data releases. For example, currency markets will be particularly sensitive to central bank decisions and interest rate expectations (or those data points which may influence such decisions e,g, jobs data), while equity markets although may fluctuate significantly to the same data are likely to react more strongly to corporate earnings reports.

In summary, the actual market response can include fluctuations in stock prices, bond yields, currency exchange rates, commodity prices, and more. Rapid and significant market movements can occur within seconds of a data release, but these may be short lived. As a trader/investor, recognising that data is unpredictable, there is two key tactics to employ, namely: Ensure you have access to and use an economic data calendar and know earnings dates of stocks you are in, so you have awareness of significant data releases prior to these happening.

This means you are able to make judgments about any potential risk management actions you should take. As part of your decision-making process make a judgment as to the potential degree to which data may have on your open positions and take remedial action as required, including portfolio balancing and appropriate position adjustment. We always discuss the potential and actual impact of economic data both before and after release at our daily LIVE update webinar sessions.

You are very welcome to join us every lunchtime (AEST) to get the latest events that may impact on your decision making. Check out our Education Hub for more information. (Keywords: Market data, economic data.)

The word Populism is probably the buzzword at the World Economic Forum this year. The headlines this week were heavily dominated by the concerns of the rise of populism around the globe. “Brazil’s Bolsonaro is the Face of Populism at the Davos Forum” “Merkel encourages multilateralism in the face of populism…” “Chrystia Freelans decries the rise of populism…” “Is Davos listening? Populist wind blows over…” “Business leaders concerned about the rise of US nationalism, populism…” This year, three Western Leaders are not present, and the reason behind it is tilted towards the issue of populism.

This is actually a “ Strong Message ” for the financial markets. The United States is not in attendance due to the shutdown related to the funding of the Wall. President Trump is taking a hard line on immigration and trade.

The United Kingdom is trapped with Brexit. Theresa May abstained from the forum as Brexit uncertainties linger. The UK leaving the European Union is the notable example of the rise of populism based on the desire to regain control over immigration and national sovereignty.

France is being rattled by the “yellow vests” protests which initially begun because of the fuel tax hikes and mean well. However, as it lingers through more than two months, there are concerns that it has given rise to populist strategies in French Is Populism a headwind for Economic Growth and the Markets? The IMF recently flagged how policies need to be adjusted to face the slowing global growth amid rising risks and has called for multilateral cooperation to tackle protectionism and trade tensions.

The message echoed the fears of the rise in populism in the markets. The concept of populist parties and economic growth can be complexed as the effects need to be assessed on the short-term and long-term basis. Populist political parties sometimes come with a fiscal spending policy that stimulates the economy in the short-term, similar to the outperformance of the US economy.

The Trump administration has boosted growth, business and consumer confidence and reduced unemployment through various policies such as tax cuts. However, populist parties often come with protectionism measures and anti-immigration policy which is a hindrance for long-term economic growth. Domestic economies are not able to reap the benefits that normally come with globalization which means that trade restrictions and labour immobility can create a stagflationary environment.

The US is the example of how the US economy bolstered during the first two years of Trump’s presidency mostly driven by fiscal spending, but the growth is expecting to slow down due to the gridlock in Washington. Similarly, the spread in populist parties has prompted market angst in the European markets. European shares have been underperforming compared to the global markets.

The % change for a year shows that the fall in major European equities – Euro Stoxx 50, FTSE100, the Dax and the CAC 40 is deeper compared to the US or Australian equity benchmark. Source: Bloomberg The shared currency is also under pressure. A look at the graph below shows that since the beginning of the year, major currencies are in the green against the US dollar compared to the Euro.

A combination of weak data, domestic political challenges and a rise in populism are weighing heavily on the Eurozone outlook. Populism and Emerging Countries The list of headwinds that the Emerging markets have to deal with over the past year is long: US Rising rates and the Fed Trade tensions The rout in oil markets Populist parties Without any doubt, we saw EM crashing last year on the three main points listed above. Populism is another significant point to monitor.

Emerging economies are the ones who benefitted the most from globalization. Trade barriers can have a big impact, and EMs rely heavily on exports to developed countries. Populism is among the most significant risks to the financial markets which are increasing the risk of triggering a crisis.

What do we know about the state-owned oil giant - Saudi Aramco? World’s largest company World’s biggest state-owned oil and gas companies World’s cheapest oil producer A leader in oil production Second-largest proven crude oil reserves All of the above would probably make this upcoming Initial Public Offering (IPO) one of the most hyped IPOs of all time. In 86-year of history, Saudi Arabia has officially stated its plan to float the company on the Riyadh stock exchange.

After first being announced in 2016, the Saudi Aramco officially confirmed the IPO on November 3. However, the size and scope of the IPO were unknown so far. On Sunday, Saudi Arabia’s officials have officially launched the IPO and confirmed that the domestic listing will take place in December.

Vision 2030 The primary purpose of the IPO is to diversify Saudi’s economy and its reliance on the oil industry. After the fall in the oil prices in 2015, Crown Prince, Mohammed bin Salman’s introduced the Vision 2030 which encompasses the desire to reinforce and diversify the capabilities of Saudi’s economy. The Prince has designed its vision on three main pillars: Saudi Arabia’s status as the heart of the Arab and Islamic worlds.

Becoming a global investment powerhouse. Transforming the country’s strategic location into a global hub connecting Asia, Europe and Africa. Hence, transforming Aramco from an oil-producing company into a global industrial conglomerate is a key step in raising funds for the Vision 2030.

Lacklustre International Response Even though the national oil company do have a high degree of independence, the Crown Prince has taken a more active role in the company over the years. As the purpose of the IPO is to raise funds to follow the plans to diversify the economy, the money will not be going to the company, unlike standard IPOs It is, therefore. a distinct consideration for the Aramco investor Bankers were unable to convince many international money managers of the merits of the deal which prompted Aramco to keep the IPO local. Shares will not be marketed in the US, Canada and Japan as originally expected.

The Domestic IPO On Sunday, Aramco finally provided details on what could be the world’s biggest IPO. Currently, the Chinese online retail giant, Alibaba holds the record with an IPO of $25 billion. Valuation Aramco valued the company between the $1.6 trillion to $1.7 trillion which was below their Crown Prince’s valuation of $2 trillion.

The new valuation implies that the investors will yield a dividend lesser than those from other leading oil and gas companies. A Smaller Stake Aramco decided to sell only 1.5% of its company on Riyadh’s Tadawul exchange which amounts about half of the amount that had been considered at an indicative price range of 30 Saudi riyals ($8.00) to 32 Saudi riyals per share. At the top of the range, the company could raise as much as $25.60 billion beating Alibaba’s capital raise in 2014.

The IPO will be split into two tranches: 5% will go individual investors who will have until November 28 to sign up for the IPO 1% to institutional investors who will have until December 4 to subscribe. Despite the lower valuation, a smaller stake and an IPO limited to local investors, Saudi Aramco is confident that they will have sufficient Middle Eastern institutional investors and local demand for a successful IPO. Setbacks in the Oil Market Oil Demand Oil prices have slumped in the last few years and have more than halved since mid-2014 mainly because of: A glut in global supply A lacklustre demand The dramatic fall in prices has forced OPEC members to cut back production to help stabilise supply and cushion the fall in prices.

US shale producers, geopolitical risks, tensions in the Middle East, trade tensions, and slowing global growth are key factors affecting the supply and demand dynamics in the oil market. Oil and Gas Divestment – Climate Activism Another crucial factor that has caused a shift in the oil market is the growing movement towards climate change which are subsequently pushing investors away from the oil and gas sector. The industry has faced intense pressure from activists and we might see the pressure intensifying as such high-scale IPO will undermine their fight against the climate crisis.

Saudi Aramco is among the top carbon dioxide and methane emitters. Those concerns are forcing portfolio managers to divest from oil and gas companies to embrace more sustainable investment. Drone Attacks The crippling attacks have caused major damage to Saudi Aramco’s facilities in Abqaiq and Khurais.

Even though the company recovered quickly and resumed production, investors are taking note of the nation’s vulnerabilities to attacks. As of writing, it was also reported that Yemen’s Houthi rebels has seized Saudi ship carrying oil rig. At a time where Saudi Arabia wishes to diversify and entice foreign investors, keeping the IPO as a local affair has undermined the efforts to open its economy to the world.

The much-muted details of the IPO, setbacks in the oil markets and the gruesome killing of Jamal Khashoggi have trigger hesitations from international investors to buy Saudi Aramco at full price. Saudi Aramco is a leader in the industry and will probably be able to cope with the current challenges of the industry until the industry is faced with the situation of peak oil demand. Oil Prices and the IPO The upcoming IPO will be one of the key determinants of the immediate price action of oil.

The public offering and the OPEC meeting are intertwined and oil traders should monitor these events carefully. OPEC’s de facto leader is Saudi Arabia and it is reported that the Saudis are set to push OPEC countries to make deeper oil cuts to keep oil prices higher. On the trade front, even though there are some conflicting trade headlines, there is much optimism on the trade front to keep oil prices from falling to September lows.

All-in-all, those two main events provide some upward room for oil prices.

The Loonie Best Performing G10 Currencies After a tight campaign marred by scandals, Justin Trudeau secured another term as Prime Minister. Unlike a clear win in 2015, the Prime Minister did not pass the threshold of 170 seats and will lead a minority government. The governing party will be forced to depend on other parties to pass legislation.

The voting results show deep divisions in the country: The Liberals won in terms of seat numbers. The Conservatives won 121 seats in Parliament compared with 99 in 2015 and have won the popular votes claiming 34.4% over the Liberals’ 33%. Bloc Quebecois was a huge win as they gained 22 seats.

The outcome of the election is unlikely going to drastically change the dynamics in the Canadian markets. On a broader level, there are layers of similarities between the agendas of the different political parties which will help to reduce the uncertainties that generally arises from election results. However, the Liberals governing as a minority government will rely on smaller parties to push legislation which will be challenging.

In the money markets, the Canadian dollar was trading near three-months high against its US counterpart on the Liberals win. The loonie has been on an upswing this year backed mostly by strong economic data and is currently the best performing G10 currencies: Source: Bloomberg Terminal Canada's Economy The Canadian economy outperformed its rivals which allowed the Bank of Canada to keep its benchmark interest rate steady at 1.75% while other central banks have cut their own rates in response to the global backdrop. Employment Employment rose by 54,000 in September driven by gains in full-time work while the unemployment rate declined by 0.2% to 5.5%.

The growth was mostly seen in the self-employment and public sector employees. Source: Bank of Canada Wage Growth The Average Hourly Wage Rate year-on-year in September jumped to 4.25% and marked the strongest month in a decade. Source: Bloomberg Terminal The Wage-common, a wage measure that the Bank of Canada uses to capture the underlying wage pressures reflecting the common trend across data sources rose to 2.7% in the second quarter in 2019.

Source: Bank of Canada Inflation The Bank of Canada aims to keep inflation at the 2% midpoint of an inflation-control target range of 1% to 3%. The recent annual inflation rate stood steady at 1.9% but fell low of market expectations of 2.1%. However, inflation remains close to or on target since March 2019.

Business Outlook Survey The Business Outlook Survey indicator rose to 0.40 which shows a slight improvement in overall sentiment. However, due to the challenges in the energy sector, the sentiment in Prairies remain predominantly negative. The Loonie While major central banks have been cutting interest rates, the BoC has been reluctant to do so despite the global downturn because of the sound economic environment.

The Canadian dollar has been on the rise and has retained the number 1 spot among the G10 currencies against the US dollar. After the election, the prospects of growth-boosting fiscal policies combined with a resilient economy may keep the BoC on the sidelines. If there is a coalition between the Liberals and the NDP, there could be a much larger fiscal spending than originally expected.

Tax cuts would also help to boost consumer spending. Investors are expecting further divergence between the Fed and the BoC. While the BoC is expected to keep its interest rate on hold this year and until late 2020, the Fed is widely expected to cut rates.

In the short-term, we expect the loonie to benefit from the rate divergence and the fiscal boost. In the medium-term, the Canadian dollar may weaken as the effective implementation of the fiscal expansionary policy will lower the Canadian exchange rate. See our introduction to forex for more information, including currency trading for beginners here.