Trade tensions sparked by President Trump’s tariffs on imports from China, Mexico, and Canada have spooked investors worldwide. Trump’s unpredictable policy shifts and escalating geopolitical tensions between Russia and Ukraine have shaken investor confidence.
While several indices are in a correction phase—trading more than 10% below their 52-week highs (India’s Nifty 50, Japan’s Nikkei 225, the US’ Nasdaq 100, and Taiwan’s Taiwan Weighted indices) —some continue to hover near record levels (France’s CAC 40, the UK’s FTSE 100, and Hong Kong’s Hang Seng).
Speaking at the CERAWeek conference in Houston, Peter Orszag, CEO of Lazard stated, "The amount of uncertainty that has been created by the tariff wars with regard to Canada, Mexico and Europe, is causing boards and C-suites to reconsider the pathway forward."
In this chart of the week, we look at the price-to-earnings (PE) ratio of the largest markets, which offers insights into market valuations at prevailing uncertain times. A higher P/E ratio suggests that investors are willing to pay more for each unit of net income, as they anticipate future growth. Conversely, a lower P/E ratio may indicate undervaluation or potential challenges within the market or specific sectors.
As of March 2025, PE ratios across various markets have shifted due to economic recovery, geopolitical developments, and sectoral performances.
Taiwan and India have the highest PE among Asian countries
Among Asia’s prominent markets, India’s Nifty 50 stands out with a relatively high P/E ratio of 20 as of March 11—despite a 9.2% decline over the past quarter. This elevated valuation comes from the index’s 115% surge over the past five years, fueled by strong growth expectations.
A key driver of this rally was China’s extended COVID-19 lockdown and growing tensions in the US-China relationship, which redirected investor interest toward India’s economy. With a GDP growth of 9.7% in 2021, India emerged as a high-growth alternative to China.
However, the benchmark index has fallen 10.3% over the past six months, and its PE has fallen below its 1-year, 2-year, and 5-year averages.
Relentless FII selling and weaker-than-expected earnings for consecutive quarters (Q2 and Q3 FY25) triggered the sell-off after the Nifty 50 hit its all-time high on September 27. Since October 2024, FIIs have divested stakes worth Rs 2.4 lakh crore from the equity market.
Sunil Tirumalai, Executive Director of GEM Equity Strategist, said that news about China's stimulus and slowing Indian macro and earnings momentum are factors in FII selling. The sell-off was also due to the weak rupee against the US dollar, which plunged to Rs 88 per dollar on February 10.
In addition, the Indian government raised the taxes on long-term capital gains to 12.5% in its FY25 Budget, further prompting an FII exodus.
Taiwan’s Taiwan Weighted index also has a higher PE of 21.8 as of March 11. Taiwan’s stock market is heavily weighted toward the semiconductor and electronics industries. High demand and profitability in these industries lead to increased PE. However, the index has declined 4.5% over the past month due to fears of 25% import tariffs on semiconductors in the US.
Other major Asian indices have lower PEs, including China’s Shanghai Composite, Hong Kong’s Hang Seng, and Japan’s Nikkei 225, at 14.2, 14.4, and 13.7. This valuation reflects a moderate market sentiment toward Chinese equities, helping the Shanghai Composite Index rise 3.2% over the past month.
Nikkei 225’s PE plunged 5.6 points in September 2024 after the index declined 4.8% in Q2FY25 after news emerged that Shigeru Ishiba was elected as the country's Prime Minister. Shigeru Ishiba indicated increasing interest rates if elected, leading to the index decline.
European markets trade near their 52-week highs
The S&P 500 index has a high PE ratio of 25.6. However, the US market has been volatile since the start of 2025. After President Trump took office, the S&P 500 touched its 52-week high of 6,147.4 on February 19. Since then, the S&P 500 has fallen 8.4% due to the import tariffs imposed by President Trump on products from China, Canada, and Mexico. Later, President Trump levied taxes on the import of steel and aluminium. This came as part of Trump’s plans to impose reciprocal tariffs on countries. As a result, the S&P 500 plunged by 7.2%, causing a decline in its PE.
By contrast, the UK’s FTSE 100, Germany’s DAX, and France’s CAC 40 have a relatively lower PE of 17.9, 20.1 and 21, respectively. However, these indices are trading near their all-time highs. Over the past year, the FTSE 100’s PE has risen by 8.1 points, drawing investors due to the interest rate cuts by the Bank of England and the European Central Bank in 2024, with four more cuts expected by July 2025. The European market has strong dividend yields, with total payouts expected to reach £83.9 billion in 2025. This translates to a yield of around 4%, making UK stocks attractive in a high-interest-rate environment.
European stocks have also been outperforming the S&P 500 over the past quarter. Germany's DAX is up 11.8%, France's CAC 40 has risen 7.8%, and the UK's FTSE 100 has increased by 2.8%, compared to the S&P 500's 7.2% decline. DAX rose after Germany’s new Chancellor proposed excluding defence spending from its debt brake of 0.35%, freeing up money for other expenditures. The German Government has also proposed a Euro 500 billion fund for infrastructure spending over the next 10 years.
Despite threats of tariffs from US President Donald Trump, European markets, including the UK and German indices, have reached record highs. Investor sentiment, monetary policy divergence from the US, and a weaker euro benefiting European exporters have contributed to this resilience.
