Why US investors should look abroad for equity opportunities


Nov. 26 2019, Updated 11:00 a.m. ET

Given that U.S. stocks are no longer cheap and most stock market bargains are now found overseas, Russ believes that U.S. investors should look abroad for equity opportunities. Broadly speaking, U.S. investors tend to prefer the comfort of home. In this sense, they are no different than investors in other countries, i.e., most investors have what is known as a “home country bias.” However, given that U.S. stocks (SPY) are no longer cheap and less expensive alternatives can still be found overseas, it may be time for U.S. investors to look abroad for equity opportunities.

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Market Realist – The current price-to-book multiple for the S&P 500 (SPY)(IVV) is 2.7x versus a 14-year average of 2.6x. Although this isn’t much of a difference, there are cheaper options in the shape of the Nikkei 225 Index (EWJ)(DXJ) with a price-to-book multiple of 1.6x and the Euro Stoxx 50 Index (EZU) with a multiple of 1.5x. These latter multiples imply that these markets deserve a closer look.

The price-to-book multiple is the price of a security or index divided by its per-share book value. Analysts use this multiple along with the price-to-earnings multiple to determine the relative attractiveness of a security or index. The multiple shows whether the security or index is overpriced, underpriced, or fairly valued relative to its historical prices or relative to other securities or indices.

Read our series Japan: Time to give the land of falling stocks another look? to learn more about investment alternatives.


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