What is the relationship of market consensus earnings growth forecasts for a market (aggregated bottom-up from company data)¹ and future country returns?

To answer this question, for each of the MSCI Developed and Emerging markets, each month, we looked both at the consensus forecasted earnings growth for the current year (after all one does not know the actual earnings growth for the current year until early the following year) as well as the consensus forecasted earnings growth for the following year. We correlated both the earnings growth forecast for the current year and the earnings growth forecast for the following year with each market’s MSCI returns over 3 periods:

  • Over the next 3 months
  • Over the next 6 months
  • Over the next 12 months

We cover 23 developed and 24 emerging markets as defined by MSCI. The study utilizes a database and returns covering a 30-plus year period from January 1990 through March 2023 for most developed markets and from August 1992 through March 2023 for many emerging markets. The charts below show the average correlation for developed, emerging, and all markets of forecasted earnings growth with market returns over 3 different periods of time.

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These results suggest that at the market level there is little correlation in the near term (3,6, and 12 months out) with earnings growth forecasts and stock prices at the market level.

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¹ I/B/E/S, Heckman Global Advisors, Bloomberg

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