Gavekal Capital: Valuations Mattered Last Week In North America

Monday, May 12, 2014

Valuations Mattered Last Week In North America

Everyday we decompose the performance of all stocks, sectors and regions within the MSCI World index to understand what fundamental forces are driving price changes.  We divided every aggregate into deciles to rank order and calculate the relationship with each fundamental variable.  We then calculate the coefficient of determination (R^2) to understand how much each, single variable explained changes in equity prices.

Last week, in North America, the strongest relationship was with price-to-book value.  About 87% of the performance last week of the MSCI North America index can be explained by price-to-book value. The lowest P/BV decile was up .1% on average, while the heighest P?BV decile was down 1.9% on average.


Below are the biggest losers from last week in North America, led by Whole Foods.


Below are the stocks in the MSCI North America index with highest book value.  Should last week's factor performance trend continue into this week, these companies would be at the most risk.