There has been one very apparent trend since late October 2022. Following more than a decade of outperformance, global stocks have been consistently outpacing U.S. stocks.
There are several reasons for this. But one major factor is the shift away from growth stocks—an area where the U.S. dominates—to value stocks.
It looks to me that when investors get interested in value, they get interested in rest-of-world stocks, too. That’s because stock markets outside the U.S. are heavily weighted on value sectors such as energy, industrials, and financials.
More importantly, for those investors who simply define “value stocks” as “cheap stocks,” global stocks are so much cheaper than U.S. stocks. Despite a bad 2022, the S&P 500 still trades at a premium of almost 50% to the Euro Stoxx 600 or Japan’s Topix index (measured in terms of price/earnings ratios)! That’s historically high and about as wide as the discount gets, in recent decades.
Why Emerging Markets Now
The same holds true even more so when you look at emerging markets, where markets were concerned about a worldwide recession, weighing on valuations throughout 2022.
That was a period in which the…
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