6 months ago • 2 mins
If you think of investing as more of a marathon than a sprint – i.e. if you’re in it for, say, ten years or more – stock valuations should be among your top concerns. After all, they’re the most important driver of returns over the long haul. So, with you in mind, here are the world’s most and least attractive stock markets based on valuations, according to Morgan Stanley.
On the less-favorable side of the ledger: US stocks – especially growth stocks – are quite costly, not just in comparison with other countries and other sectors, but also in relation to their own historical data. Whether you consider forward price-to-earnings, price-to-book, or price-to-sales ratios, shares of US companies invariably register as pricey. From an income perspective, they’re also a disappointment, with a meager dividend yield of 1.7% (and a paltry 0.6% for US growth stocks). India, too, raises eyebrows with high relative and absolute valuations, and minimal dividends.
However, stocks aren’t spendy everywhere. Three markets – Brazil, European value stocks, and the UK – appear decidedly cheap. Brazil stands out with the lowest valuations ratio among all countries and trades at a lower ratio than its historical average. Add to this an attractive dividend yield of 11.7%, and Brazil offers a substantial safety margin. The UK and European value stocks are also trading at significant discounts and boast attractive dividend yields exceeding 4%.
Now, sure, you might argue that cheap stocks are often cheap for a reason. But keep in mind that investors are pretty bad at forecasting long-term fundamentals and tend to overplay the importance of recent factors. So the worse the prospects – and the bigger the markdown – the easier it is for the tide to turn in your favor. On the other hand, the loftier the premium, the trickier it is for reality to match those sky-high expectations. So, you might want to consider diversifying your US stock portfolio with shares from these undervalued regions. Chances are, they might be priced more affordably than they should be for the long haul.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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