≈ Compared to America, Foreign equities offer discounts≈
Many traders focus on U.S. equities to the exclusion of all else. America boasts the biggest companies, the most well-capitalized, and arguably the most regulated. Over the past 13 years, U.S. stocks have been trouncing the rest of the world in their performance.
But there is a negative to the rip-roaring gains.
‘Merica has become expensive. Quite so. The price-to-earnings ratio differential between U.S. stocks and the rest of the world has reached a multi-decade extreme. This is why some institutions and professional investors who invest based on valuations may favor foreign equities here.
If you’ve never tracked or traded them, consider adding ETFs like EFA, EEM, and VEU to your watchlist.
Chart of the Day
Ark Innovation ETF (ARKK)
Over the past twenty years, the P/E ratio of foreign stocks has traded at an average discount to U.S. stocks of -12.8%. The current reading is nearly -30%! That signals an extreme in the valuation differential. At the same time, the chart on the right shows that foreign equities are also offering better dividend yields.
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