By Talley Léger, Investment Strategist
We share our answers to clients' top questions about risks and opportunities in global markets.
We were recently joined by clients for a discussion about global investment opportunities, in the context of technically overbought conditions in US stocks. In this blog, we share our views regarding where we see risks and opportunities in international markets.
From a valuation perspective, in which regions and countries do you see the most risk and opportunity? Where do the US and Canada fit into that valuation spectrum?
Following a high-velocity selloff and subsequent v-shaped rebound, US stocks have surprisingly clung to their status as one of, if not the most overvalued market segments of the developed world. Indeed, US and developed market price-to-sales (P/S) ratios are trading at notable premia relative to the global benchmark and history. In our view, unprecedented policy support has encouraged extreme risk-taking by investors, a consequence of which has been frothy valuations in US stocks.
At the other end of the valuation spectrum, structural underperformance from Chinese and emerging market (EM) stocks - until recently - has compressed their P/S ratios to deep discounts compared to the world-wide stock market and history. Clearly, Europe and Canada are developed economic regions. However, European and Canadian stocks currently trade at discounts like those of Chinese and EM stocks.
While valuation is a good starting point for an investment thesis, it isn't enough on its own. Indeed, cheap valuations require catalysts to unleash the potential opportunities embedded in share prices. On that score, leading indicators of business activity across the emerging world - China and South Korea in particular - have been proving more resilient than those of the developed world, including the US, Europe, Japan and Canada.
We believe compelling opportunities exist for investors in EM
