With the stock market at an all-time high, is it the time to look elsewhere for value?
Normally, what goes up must come down and some analysts think the United state's stock market won't be as robust come next year.
International stocks outperforming US stocks has only happened twice in the last decade and right now, investors are betting this is going to occur in the coming year. Analysts argue that this is going to happen because of the attractive valuations and potential rebound in global economic growth.
According to current reports, the S&P 500 is up by more than 180% and the ACWX just made a profit of 18% since 2010.
Analysts believe the current valuations favour the international stocks because the S&P 500 price-to-earnings ratio currently stands at 20; which is the average richest valuation since August 2018. International stocks, on the other hand, are trading on a much lower valuation. The price-to-earnings ratio on ACWX currently is at 14.7.
According to the Head of Research at Topdown Charts, Callum Thomas, " there is a 50% valuation gap between the U.S. and international stocks. Yes global ex-US has its problems, but are they 50% discount problems? At a certain point, if the valuation gap is wide enough, it kind of starts to speak for itself."
On the trade front, the U.S.-China trade dispute has continued to linger, pending on when the dispute will be resolved after the first phase of the deal will be signed. This has caused some reactions from various global central banks. For instance, the European Central Bank has launched a bond-buying scheme, The Peoples Bank of China lowered its short-term funding rate for the first time since 2015, while the Bank of Japan has kept its monetary policy quite easy throughout this year.
Chief U.S. Equity Strategist of Stanley Morgan, Mike Wilson said, " the MSCI All-country World Index (the body which measures global stock performance) has already produced returns that are higher to a meaningful extent after hitting its lows in December 2018. That is consistent with the a bottoming in global economic growth, meaning the markets are sending a signal about the turn in growth and pricing it in many cases."
Wilson has further advised investors to buy Japanese and Korean stocks in the coming year. CNBC reports that the iShares MSCI Japan ETF (EWI) is about 18% higher in 2018 than 2017 while Korean stocks have however not performed well this year. CNBC further reports that the European stock market seems attractive to investors and could have many investors migrating to the market.