Despite the gains in US stocks this year, some investors are looking for opportunities elsewhere.
Investors reduced their holdings of US equity mutual funds and exchange-traded funds by $7 billion, while adding $56 billion to their non-US counterparts this year through July 26, according to Goldman Sachs.
That’s despite what’s been shaping up to be a banner year for the US stock market — at least prior to this week’s US credit rating downgrade (more on that below).
The benchmark S&P 500 index has gained about 18%, pushed up by artificial intelligence excitement, a strong economy and optimism that the Federal Reserve is nearing the end of its rate-hiking cycle.
But some investors say that cheaper valuations for non-US stocks, compared to their domestic counterparts, are enticing some on Wall Street to look for deals overseas.
The S&P 500 index currently trades at about 19.6 times its expected earnings, according to FactSet. In comparison, Europe’s Stoxx 600 index trades at 12.9 times its expected earnings, Hong Kong’s Hang Seng index at 9.6 times and Brazil’s Bovespa index at 8.3 times expected earnings.
“If you missed the first half of the US equity market rally, things are pretty expensive,” said Adam Turnquist, chief technical strategist at LPL Financial.
Global stocks could see support from the greenback’s declining value this year. China’s attempts to reignite its stalled economy could also provide a welcome boost.
International stocks have tended to be value-oriented for the past decade, meaning they have traded at relatively low prices compared to their earnings and growth potential. For investors who have cash in the US market, where the rally has been concentrated mostly in growth tech stocks, searching outside the country can help broaden their portfolios.
Jimmy Lee, chief executive of The Wealth Consulting Group, says that he’s bullish on global stocks, especially as the market’s rally continues to broaden out from tech.
“I think capital could continue to flow overseas,” he said.
Still, history doesn’t exactly bode well for international stocks. The MSCI All Country World ex USA index, which tracks the performance of large- and mid-cap stocks in developed and emerging markets, has underperformed the S&P 500 for eight of the last 10 calendar years.
That trend, at least for now, is on pace to continue this year. That MSCI All Country World ex USA index has risen roughly 9% on a US dollar basis, underperforming the S&P 500.
Source : CNN