GURUFOCUS.COM » Global Market Valuations » Canada Tutorial

Country: Canada (updated daily) check out Global Overview for detailed methodology.

According to the original Buffet Indicator, the Stock Market is Modestly Overvalued.
Ratio of total market cap over GDP: Recent 20 Year Maximum - 184.77%; Recent 20 Year Minimum - 70.26%; current - 149.99%
Expected future annual return: 4.3%

Based on the newly introduced total market cap over GDP plus Total Assets of Central Bank ratio, the Stock Market is Modestly Overvalued.

Ratio of total market cap over GDP plus Total Assets of Central Bank: Recent 20 Year Maximum - 150.32%; Recent 20 Year Minimum - 67.03%; current - 135.38%
Modified expected future annual return: 4.7%

ETF Used for dividend yield: EWC (Yield=2.21%)
Market Index used: TSXSP
Current Annual GDP: $2,078 billion US dollars or 2,843 in billions of national currency (GDP in Local Current Prices Annual Growth=4.1%)
Current Total Asset of Central Bank: $224 billion US dollars or 307 in billions of national currency
Data since year 1980

Canada Historical GDP Growth

Historical GDP of Canada in billions of national currency. The GDP in local current prices has grown at the annual rate of 4.1% over the past 8 years. Please note this growth rate includes the effect of price inflation and it is NOT the real GDP growth rate. Current Annual GDP: $2,078 billion US dollars or 2,843 in billions of national currency.

Historical Stock Market Cap

Historical total market of Canada in billions of national currency. This value is normalized using the data published by WorldBank. TSXSP is used for the normalization. Use TSXSP as index, data goes back to 2000. The index comprises about 70% of market capitalization for all Canadian-based companies listed on the TSX. Annual GDP data from IMF, back to 1990, in billions Canadian Dollar.

Historical Total Assets of Central Bank

Historical Total Assets of Central Bank of Canada in billions of national currency, which is obtained from each country’s central bank balance sheet. Please be aware that if the total assets is displayed as zero or - , it suggests that there's no data available rather than the original data being zero. In this case, the modified version of both the ratio and projected annualized market return will be treated the same as the original version.

Original and Modified Historical Ratio of Total Market Cap over GDP (%)

The current ratio of total market cap over GDP for Canada is 149.99%. The recent 20 year high was 184.77%; the recent 20 low was 70.26%. If we assume that the ratio will reverse to the recent 20 years mean of 127.88% over the next 8 years, the contribution to expected annual return is -1.97%.

Based on the modified version, the current TMC / (GDP + Total Assets of Central Bank) Ratio for Canada is 135.38%. The recent 20 year high was 150.32%; the recent 20 low was 67.03%. If we assume that the ratio will reverse to the recent 20 years mean of 119.18% over the next 8 years, the contribution to expected annual return is -1.58%.

This is the detailed historical chart of the original TMC / GDP ratio and modified TMC / (GDP + Total Assets of Central Bank) ratio.

Based on these historical valuations, we have divided market valuation into five zones:

Ratio = Total Market Cap / GDP	Valuation
Ratio ≤ 90%	Significantly Undervalued
90% < Ratio ≤ 115%	Modestly Undervalued
115% < Ratio ≤ 141%	Fair Valued
141% < Ratio ≤ 166%	Modestly Overvalued
Ratio > 166%	Significantly Overvalued
Where are we today (2024-04-28)?	Ratio = 149.99%, Modestly Overvalued

Based on these modified historical valuations, we have divided market valuation into five zones:

Ratio = Total Market Cap / (GDP + Total Assets of Central Bank)	Valuation
Ratio ≤ 83%	Significantly Undervalued
83% < Ratio ≤ 107%	Modestly Undervalued
107% < Ratio ≤ 131%	Fair Valued
131% < Ratio ≤ 155%	Modestly Overvalued
Ratio > 155%	Significantly Overvalued
Where are we today (2024-04-28)?	Ratio = 135.38%, Modestly Overvalued

Predicted and Actual Returns

From the equation presented on the U.S. market valuation page,

Investment Return (%) = Dividend Yield (%) + Business Growth (%) + (Re/Rb)(1/T)-1

We can compute the predicted and actual returns of the Canada stock market over a given time period, T. In the calculation, we set T to equal eight years, the approximate length of a full economic cycle. The calculated results are presented in the chart below.

The Predicted Return line indicates the expected, or predicted annualized return for the next eight years if the current TMC / GDP ratio reverts to its recent 20 years mean of 127.88%.

The Modified Predicted Return line indicates the expected, or predicted annualized return for the next eight years if the current TMC / (GDP + Total Assets of Central Bank) ratio reverts to its recent 20 years mean of 119.18%.

The Actual Return line indicates the actual, annualized return of the Canada stock market over eight years. We use “TSXSP” to do the actual return calculation. We can see the calculations largely predicted the trend in the stock market as the actual return line is closely parallel to the two predicted return lines.

Conclusion

Under the original buffett indicator, the stock market of Canada is expected to return 4.3% a year for the coming years. This is from the contribution of economic growth in local current prices: 4.1%, Dividend Yield: 2.21% and valuation reverse to the mean -1.97%.

Under the modified model, the contribution of economic growth and dividend yield stays the same while the valuation reverse to mean changes to -1.58%. Consequently, the stock market of Canada is expected to return 4.7% a year.

This is the projected return and the modified projected return of the stock market in Canada relative to other countries. Click on the country on the right sidebar to check out the details for each country.





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