So now the question we are getting is, have I missed the opportunity in international, and specifically in EM? You can probably guess what our answer is to that: an emphatic no! International investing still makes a lot of sense in the current environment, even with the huge outperformance this year versus the U.S. There are three reasons we think international markets still make sense:
- On a variety of measures, EM and EAFE are cheap relative to the U.S.
Asset Class Price/Book Price/Cash Earnings Price/Trailing 12-Month Earnings MSCI USA 3.2x 14.7x 23.9x MSCI EAFE 1.7x 9.9x 18.3x MSCI Emerging Markets 1.8x 9.9x 15.7x
- Historically, the cycles of outperformance of Developed International versus U.S. stocks tend to last about four years, adding about 80% of outperformance. We are less than one year in to the current cycle. Our comments from May 2017 can be found in our June blog on the topic.
- Growth is stronger outside the U.S. Yes, it is true that GDP growth does not correlate to stock market performance. We prefer to look at leading indicator (LEI) growth. According the OECD, as of 10/2017, the vast majority of EM countries are showing stronger LEI growth (average 0.15%) than the developed and G7 countries (0.02%).
Are there risks out there to global investing? Absolutely. Are there things that are unforeseen that could cause markets to go down significantly? No doubt.
But the question here is, is it too late to get involved in international and emerging markets? We think the balance of the evidence says no: There’s still time to get involved.
Accuvest Global Advisors (AGA) is a registered investment advisor based in the San Francisco Bay Area. Founded in 2005, AGA has drawn considerable recognition in the industry for its work in building global strategies through the use of single-country ETFs. For more thought leadership and firm updates, visit www.accuvestblog.com,www.twitter.com/Accuvest or email [email protected]. For a list of full disclosures, please click here.