Recommendation: Look outside the US for stock bargains
5 things for every investor's to-do list as 2014 draws to a close (Part 5 of 8)
Increasing international exposure makes sense in general, but even more so these days when most stock market bargains are found overseas. U.S. stocks are no longer cheap, and that has stocks outside U.S. borders looking even more reasonable. Specifically, I see opportunities in Japan, which represents one of the few stock market bargains in the world today, and in select emerging markets, particularly in China and other Asian countries.
Market Realist – The graph above shows the price-to-earnings ratio for various global equities. The S&P 500 (SPY)(IVV) is no longer cheap, with a price-to-earnings ratio of 15.6x. On the other hand, you can find bargains in international markets (QWLD)(URTH). China seems to be the most attractively priced, at 8.9x.
Though China has been suffering from a slowdown and concerns about manufacturing, its stocks can move higher. So investing in a China-focused ETF like the iShares China Large-Cap ETF (FXI) could be a good idea. Japanese equities (EWJ) too look attractively priced, with a price-to-earnings ratio of 13.4x.
Emerging market equities (EEM) experienced a sell-off in this quarter due to the downward pressure exerted by the climbing U.S. dollar and apprehensions about a rate hike by the U.S. Federal Reserve. With attractively priced valuations, emerging markets could be a good investment opportunity. But you should be careful to select only emerging markets that have growth potential.
Asia is a potential investment opportunity. The market segment is not only attractively priced with growth potential, but it has also reflected less vulnerability to capital reversals. Asian markets usually benefit from a strengthening U.S. economy.
Read on to the next part of this series to see why it’s extremely important to choose you bonds wisely.
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