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Retail investors in the United States are almost forced to engage in top-down investing when they seek diversification. They cannot easily buy most foreign stocks directly (most are not cross-listed in the US) and have to consider different funds as investment vehicles to gain exposure to international securities.

Since the benefits of global investing cannot be ignored, value investors should reluctantly engage in top-down market analysis. Value (prices below intrinsic value) can be found at three levels:

1) Value from cheap foreign currencies. In the long run currencies tend to meander around purchasing power parity (PPP), a relative price level that would allow a customer to buy the same amount of a good domestically as they could by exchanging domestic currency for foreign currency and then buying that good in a foreign country. Simply put, if PPP holds I would be able to buy the same amount of gas in the US as I could in Mexico, either by paying X dollars in the US or exchanging X dollars for Y pesos and then buying the gas in Mexico. Obviously there are issues about location and quality, but that’s the general idea. Countries whose currencies trade at a discount to PPP vs. the US dollar might afford some securities selling at a discount.

2) Funds trading at market prices below Net Asset Value (NAV). If the fund is trading below the trading values of the shares it owns, it could represent a way for investors to save money. However, other considerations like fees and liquidity might explain such discounts.

3) Cheap valuations of individual fund holdings. Funds composed of value stocks are more attractive as value investments than funds composed of glamor stocks, all else equal.

Fortunately, there are many Closed-End funds (CEFs) which specialize in foreign markets. I have listed a ones that trade at discounts to NAV that are steeper than 10%:

Closed-End Fund (Ticker)

Discount

Expense Ratio

Holdings

Forward P/E

Forward P/B

PPP Discount to USD

Thai Fund (NYSE:TTF)

-14.4%

1.6%

Thailand

11.77

1.77

-43.9%

Aberdeen Israel Fund (NYSEMKT:ISL)

-14.1%

1.7%

Isreal

6.69

1.70

0.4%

Thai Capital Fund (NYSEMKT:TF)

-12.5%

2.1%

Thailand

9.83

1.90

-43.9%

Morg Stan East Europe (NYSE:RNE)

-12.4%

2.0%

Russia & Eastern Europe

7.25

1.05

-29.0%

JF China Region Fund (NYSE:JFC)

-12.3%

2.0%

Greater China

9.51

1.38

-35.7%

Morg Stan Frontier Em Mk (NYSE:FFD)

-11.8%

2.0%

Frontier Markets and UK

9.67

1.38

First Tr/Abrdn Emerg Op (NYSE:FEO)

-11.8%

1.8%

Emerging Bonds & Stocks

11.45

1.42

Turkish Investment Fund (NYSE:TKF)

-11.2%

1.1%

Turkey

10.59

1.41

-36.6%

Herzfeld Caribbean Basin (NASDAQ:CUBA)

-11.2%

2.7%

The Americas

10.88

1.12

Morg Stan China (NYSE:CAF)

-11.2%

1.8%

China

12.37

2.12

-35.7%

ING Em Mkts Hi Div Eqty (NYSE:IHD)

-10.6%

Emerging High Div

8.54

1.36

India Fund (NYSE:IFN)

-10.3%

1.3%

India

12.29

2.30

-63.2%

Asia Pacific Fund (NYSE:APB)

-10.2%

2.0%

Asia Ex Japan

10.17

1.65

-35.7%

Forward P/E and P/B estimates were collected from Morningstar.com. PPP discounts were left blank for funds whose highly diversified portfolios did not have a dominate currency.

Many of these CEFs are cheap based on discounts to NAV, currency, and holding valuation. For examples, the Thai Fund trades at a -14.4% discount to the market value of its holdings, and these holdings are denominated in a cheap currency and trade at attractive price multiples.

Despite triply-attractive values, investors should be cautious about investing in these funds. Many of these markets are “emergency markets” and should not receive any sizeable allocation of your portfolio. For example, India was struggling with rupee devaluation and Thailand has suffered riots and floods. Extreme value plays like these are nice for very small investments, but should never be heavily relied upon.

Additional research will be provided to highlight how the investing environments differ under different governments. This article has only illustrated attractive valuations without exploring the risks in investors in different nations.

Source: All The World's A Stage For Value Investing