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. It is an emphatic no! International investing still makes a lot of sense in the current environment, even with the huge outperformance this year versus the US. There are 3 reasons we think international markets still make sense:
1) On a variety of measures, EM and EAFE are cheap relative to the US.
|Asset Class||Price/Book||Price/Cash Earnings||Price/Trailing 12 Month Earnings|
|MSCI Emerging Markets||1.8x||9.9x||15.7x|
2) Historically, the cycles of outperformance of Developed International vs. US stocks tend to last about 4 years, adding about 80% of outperformance. We are less than 1 year in to the current cycle. Our comments from May 2017 can be found here: https://accuvestblog.com/2017/06/05/intl-momentum-has-shifted/
3) Growth is stronger outside the US. 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 .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? And we think the balance of the evidence says no. There’s still time to get involved.