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These non-US markets are worth a look: Strategists

With the S&P 500 getting more expensive as it crosses record high after high, investors can look outside the U.S. for better deals, according to at least two strategists.

“There’s no question that at the margin, the value opportunities are outside the United States as opposed to inside the United States,” Scott Clemons, chief investment strategist at Brown Brothers Harriman, told Yahoo Finance’s The First Trade.

In the U.S., Bloomberg data showed the S&P 500’s trailing 12-month price/earnings ratio was just over 22 as of Thursday, or well above both its 5- and 10-year averages.

Higher ratios can signal an asset may be overvalued, although some analysts have pushed back on the idea that U.S. multiples lack further room to expand.

That notion is less in contention for international stocks, where price multiples remain low by comparison. The PE ratio for the MSCI Emerging Markets index was about 15.8 on a trailing 12-month basis as of Thursday, Bloomberg data showed.

“The tyranny, the dominance of U.S. performance over the developed international world, the emerging international world, is so prolonged that it’s really created a valuation gap that means the pickings are better outside the states,” Clemons said.

People walk past an electronic display showing world markets indices outside a brokerage in Tokyo, Japan, January 8, 2020. REUTERS/Issei Kato

‘Overwhelming list of catalysts’

Abhay Deshpande, chief investment officer at Centerstone investors, sees upside opportunity for international stocks after their underperformance against the S&P 500 last year, when concerns over slowing global growth and manufacturing-sector performance weighed.

“Now we have an overwhelming list of catalysts,” Deshpande said. He pointed to a globally coordinated easing of monetary policy, fiscal expansion in Japan and China and signs of recovery after 2019’s industrial downturn as a few of the brighter spots.

“The boxes are all checked,” he said.

At Brown Brothers Harriman, Clemons said the firm has increased exposure to both international developed and emerging markets, “while still retaining a healthy exposure to U.S. equities,” he said.

“Emerging markets is our favorite, so India would probably be top of that list followed closely by China, but some domestic European companies as well,” Clemons said.

With European markets especially, Clemons warned against conflating optically negative news about economic growth with a lack of investible ideas.

“One of the things I have to talk to my clients about all the time is to not necessarily translate a headline about malaise in German economic growth into a lack of opportunities for investors in Germany those things can be different and create opportunities,” he said. “They’re out there.”

For Deshpande, Asian equities hold exceptional promise, he said.

“In Asia, we can find companies that are trading at 8x earnings, that are trading at less than book value, which have decent growth prospects, good cash flows, good dividend yields,” he told Yahoo Finance.

Specifically, he said he’s looked at opportunities in Thailand, Indonesia and Hong Kong, even as months of protests have hit the semi-autonomous region.

“A lot of their property companies have been depressed there (in Hong Kong) – those are really good, attractive values,” Deshpande said. “You could buy the stock exchange, it’s cheap. You could go to Malaysia, buy the airport, it’s cheap. You could go buy the casino, it’s cheap.”

“Outside of the United States, I could go on and on,” Deshpande said. “Every day I trip over another company that’s at 10x earnings and a high dividend yield.”

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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