With the turmoil in the Middle East and the risks caused by the Fukushima Nuclear Accident it has been easy to lose sight of the relatively positive news coming from companies and governments. The US has cut its unemployment rate by a full percent in just three months. Company earnings are coming in back above 2007 record high levels. Equity prices have been pushed lower by geopolitical shocks, however many are now stating that companies are undervalued relative to their earnings.

PricewaterhouseCooper stated in March that in comparison to its long term average PE the FTSE 100 is undervalued by 12%. Other markets from the US to Europe are at their lowest relative values since 2008. Last time equities got this cheap there was a rally of more than 25% in just 3 months.

Equity valuations are not an exact science. It is possible for PE ratios to drop below average levels for significant periods of time. However, assuming the Middle East situation does not get worse and there are no other major crises that develop in the next few months, April and May should see significant rallies in most developed markets.