Global Index Returns in 2024
Argentina's Merval led the world in 2024, climbing more than 170% in local currency. Damodaran's caveat matters for valuation professionals: headline index returns are a narrow slice of each country's equity market, quoted in local currency, and expressed in nominal terms. Drawing cross-border conclusions from those numbers without adjustment is misleading.
The Currency Effect
Local-currency performance and dollar-denominated performance can diverge sharply once exchange rates are layered in. For anyone building a cost of capital or valuing a foreign subsidiary, understanding the currency lens is non-negotiable.
"There is no such thing as a global risk-free rate, since risk-free rates go with currencies, and risk-free rates vary across currencies."
Practically, that means your risk-free rate must match the currency of the cash flows you're discounting — a USD risk-free rate should never be paired with ARS or TRY cash flows.
The Risk Effect
Country risk is not uniform and should not be approximated by a single global premium. Damodaran continues to push practitioners toward explicit country-by-country risk measurement, using sovereign spreads, political risk scores, and equity volatility ratios rather than lumping foreign exposures into a generic "emerging markets" bucket.
The Pricing Effect
On the pricing side, Damodaran compares equity valuations across geographies using several multiples:
- P/E ratios for earnings-based comparisons
- EV/Sales for revenue-based comparisons where margins differ
- EV/EBITDA to strip out capital structure and depreciation policy
Cross-country multiple comparisons work only when adjusted for differences in growth, risk, and profitability — raw multiples across countries can mislead more than they inform.
Looking Ahead
Damodaran flags several forces shaping 2025: renewed equity volatility, the Trump administration's tariff agenda, a broader resurgence of economic nationalism, and the continued blurring of the developed-versus-emerging markets divide. For valuation professionals, the takeaway is that country classifications based on 1990s frameworks no longer hold up — risk must be measured at the company and exposure level.
Bottom Line
Comparing global returns is useful, but only after controlling for currency, risk, and pricing differences. The conventional developed/emerging distinction is eroding, and cross-border valuation increasingly requires firm-specific, currency-consistent risk measurement.