Why international stocks are attractively priced

Why viewing the US as a safe haven could cost you (Part 3 of 5)

(Continued from Part 2)

While US stocks still appear reasonably priced, and downright cheap compared to fixed-income alternatives, they are relatively expensive compared with other countries. U.S. large caps trade for 2.6 times book value compared with 1.9 for the rest of the world. This represents a 37% premium. U.S stocks (IVV) look particularly pricey compared to Europe (EZU), which has a price-to-book ratio of 1.73; Japan (EWJ) with a P/B ratio of 1.53, and emerging markets (EEM) with a P/B ratio of 1.40.

Market Realist – The graph above compares the price-to-earnings ratio (or PE ratio) of the S&P 500 (SPY)(IVV), the iShares MSCI EAFE Fund (EFA), and the iShares MSCI Emerging Markets Fund (EEM) since the start of 2010. The graph indicates that the S&P 500 is slightly richer than other developed markets and much richer than emerging markets. They’re trading at 17.0x, 16.1x, and 12.1x times their earnings, respectively. The U.S. index is trading at well above its five-year average, which is 15.5x. Developed (VEA) and emerging markets are trading below their five-year average, which stands at 16.8x and 12.6x, respectively.

Global stocks (QWLD), and in particular emerging markets (VWO), present a great opportunity for investors. Find out more in the next part of this series.

Continue to Part 4

Browse this series on Market Realist:

• Part 1 - US stocks have outperformed, but are they still a safe bet?

• Part 2 - Why have US stocks outperformed stocks from Europe and Japan?

• Part 4 - Must-know: Why you should invest in emerging markets