4 Countries To Focus On In August

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 |  Includes: BRZS, BRZU, BZQ, DBBR, DBKO, DXKW, EPU, EWI, EWY, EWZ, FBZ, FKO, HKOR, KORU, KORZ, UBR
by: Accuvest Global Advisors

Summary

Countries with the strongest fundamental profiles are continuing to outperform the rest of the market.

Extra caution needs to be used when investing in developed Europe.

South Korea and Brazil are our two fastest rising countries.

Italy and Peru are falling in our rankings.

Heading into August, we think that the 4 countries listed below warrant extra focus. Our complete list of country rankings can be accessed here: Country Ranking Model.

3 Points to set the Global Landscape

  1. Developed Europe has been a drag for investors who were chasing the performance from the end of 2013. It is the only region (MSCI Europe Index) with negative performance (-3.02%) over the last three months, and is highlighted by MSCI Austria, which was down -11.49% in July.
  2. The MSCI Emerging Markets Index outperformed MSCI World Index (developed markets) by 3.53% in July. China and Indonesia led the region as both were up over 8%.
  3. Countries with the strongest fundamentals continued to outperform while buying countries with cheap valuations has been a drag on country selection.

2 Countries that are rising

South Korea (NYSEARCA:EWY) Jumped 4 spots in the rankings and is now ranked #3 overall. Korea already had top 5 risk and valuation rankings, but got a big boost with improving momentum. As of the end of July, the MSCI South Korea Index was up 6.53% over the last 3 months. In addition, they are trading at a major discount with a 10.9 P/E compared to the MSCI ACWI Index at 17.3.

Brazil (NYSEARCA:EWZ) finally climbed in the rankings after an extended time near the bottom. They are currently ranked near the middle of our universe at 18th overall. They have had good momentum over the last 6 months, and are one of the few countries with positive returns this month. Brazil remains the riskiest country we follow, especially when considering their currency valuation. However, downside deviations are improving make it worth monitoring.

2 Countries that are falling

Italy (NYSEARCA:EWI) dropped 9 spots and is now ranked 30th overall. They are the 3rd worst performing country over the last 3 months, down -6.97% (MSCI Italy Index) in USD. Italy also has the worst fundamental profile of any country we follow. They have the lowest Return on Equity at a mere 3.2% compared to the ACWI of 11.9%. Valuations are also extremely rich. The MSCI Italy Index currently has a P/E of 32.2, 18.4 points higher than their average 5-Year P/E of 13.9.

Peru (NYSEARCA:EPU) continued to slide in the rankings and is now the second worst ranked country we follow. Valuations are at extreme absolute and relative levels. Price/Cash Earnings for the MSCI Peru Index is 33.3 while the MSCI ACWI is only 10.2. Additionally, they have the worst year-on-year trailing growth in EPS and a dividend yield of only 1.2%

Disclosures

This article is strictly informational and should be used for research use only. It should not be construed as advertising material. The opinions expressed are not intended to provide investing or other advice or guidance with respect to the matters addressed in this brochure. All relevant facts, including individual circumstances, need to be considered by the reader to arrive at investment conclusions to comply with matters addressed in this brochure. Charts and information are sourced from Accuvest Global Advisors and the MSCI, unless otherwise noted. Remember that investing involves risks, as the value of your investment will fluctuate over time and you may gain or lose money. You should seek advice from your financial adviser before making investment decisions. Investment risks are borne solely by the investor and not by AGA. AGA is an independent investment advisor registered with the SEC. All disclosures, marketing brochures, and supplemental firm sheets are available upon request.

Disclosure: The author is long EWI, FKO, EWY, EWZ.

Business relationship disclosure: Accuvest Global Advisors is a registered investment advisor in the SF Bay Area. This article was written by David Allen, one of portfolio managers. We did not receive compensation for this article, and we have no business relationship with any company whose stock is mentioned in this article.