Friday, July 5, 2024

Should investors consider global markets?

The recent rise in stock prices and concerns over a potential bubble in artificial-intelligence stocks have left many investors feeling uneasy. With some experts predicting only minor gains in the market for the rest of the year, the question arises: are there any stocks left that offer good value?

Value stocks, traditionally defined as shares with lower prices compared to their underlying assets or earnings, have been out of favor in recent years. Growth stocks, on the other hand, have seen significant gains. Some critics even suggest that value investing is dead, as it struggles to account for intangible assets and research spending that drive many successful companies’ growth.

Despite this, concerns over high valuations continue to grow. The cyclically adjusted price-to-earnings ratio, for example, is higher than it has been in the past during market peaks. This has led some investors to look beyond American stocks for opportunities.

Victor Haghani of Elm Partners suggests that looking at global markets may offer better value, as valuations are lower compared to American stocks. In fact, he argues that there is a significant overlap in where the profits of American companies come from, suggesting that the pricing of earnings may be skewed.

Hugh Gimber of JPMorgan Asset Management points out that European firms, often seen as lacking dynamism compared to American tech companies, are actually underpriced in relative terms. Similarly, emerging-market countries like Mexico and Vietnam present value opportunities, especially in sectors benefiting from global trends.

Jens Foehrenbach of Man Group highlights Japan’s Topix index, where a significant portion of companies have yet to raise their price-to-book ratios above 1, presenting a potential investment opportunity for those who believe they will eventually do so.

While investing in value stocks outside of America may involve taking a leap of faith, the pricing differentials in global markets may have grown too large to ignore. In fact, global fund managers have started rotating their equity allocations into European and emerging-market stocks, indicating a potential shift towards undervalued opportunities.

In conclusion, as concerns over high valuations and potential market bubbles continue to grow, investors are looking beyond American stocks for potential value opportunities in global markets. With pricing differentials between American and non-American stocks becoming increasingly significant, professional investors are starting to rotate their allocations towards undervalued markets. The future of value investing may lie outside of America, where opportunities for growth and value may be ripe for the taking.

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