Look Past The US, And Stocks Don’t Appear Expensive At All

Look Past The US, And Stocks Don’t Appear Expensive At All
Andrew Rummer

over 2 years ago1 min

Mentioned in story

It’s no secret that global stocks have had a great run since March 2020, when the market rebounded from a short but sharp coronavirus-inspired sell-off. 

And after that 86% rally, it’s not hard to find people calling the stock market overvalued – or even in bubble territory.

But it turns out that inflated equity market valuations are mainly an American issue. Once you exclude the US, global stocks are barely more expensive compared to profits than their long-term average.

The chart shows how the valuation of the MSCI World ex-USA Index – a benchmark of stocks in 22 rich nations, excluding the US – has steadily declined this year. The index’s price compared to its members’ estimated profits currently sits at 16.1, compared to an average of 14.3 since Bloomberg began collecting the data in 2005. Not exactly a screaming bargain, but not eye wateringly expensive either.

Stripping out US stocks removes those famous tech giants and their chonky valuations from the equation. The likes of Amazon – trading at 51x estimated profit – and Tesla – at 132x.

If you’re sensitive to valuations and want to pivot your equity portfolio away from the US and towards more reasonably priced markets, take a look at exchange-traded funds (ETFs) like the iShares MSCI ACWI ex US ETF (ticker: ACWX).



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