Investing in international equities is challenging, but increasingly important.
The top seven emerging markets (the E7) were collectively half the size of the top developed markets (the G7) in 1995, approximately the same size in 2015, and are estimated by Pricewatershouse Coopers (PwC) to be double the size in 2050.
And according to the International Monetary Fund, about 70% of all new global growth currently comes from emerging markets, while 30% comes from developed markets.
It’s no wonder that emerging markets had almost double the compounded annual rate of return of the total world market since 2000, according to MSCI.
But there are all sorts of risks for international investing:
- Currency swings
- Changing valuation levels
- Sovereign debt instability
- Corruption and sanctions
- Unfamiliar companies
So, I organize data from 29 developed and emerging markets, and rank them according to a combination of growth, valuation, debt, political stability, and currency strength.
And the culmination of that project is the 2018 Global Opportunities Investment Report:
One of the easiest ways for investors to get exposure to markets around the world is to invest in broad international ETFs. However, since they are almost all weighted by market capitalization, they tend to be highly concentrated in specific countries like Japan, the UK, and China.
That’s why, for some investors, holding some single-country ETFs can help diversify your portfolio and help you focus on regions that you are bullish on.
This report analyzes 29 different countries, shows you their valuations, growth expectations, debt levels, political stability rankings, and currency information, to help you make informed decisions about where to allocate your money.
It also shows the various advantages and disadvantages of each ETF, since there are often multiple ways to invest in any given country.
Although the report is over 100 pages, there is an executive summary with color-coded charts so that you can get all the key information and see the best investment regions in 15 minutes. Then if you want, you can skim to the sections of the report that focus on countries that interest you right now.
For example, here are the debt levels as a percentage of GDP for 26 of the countries, including government, corporate, and household layers of the market, with the country names removed for demonstration purposes:
There’s Always Opportunity Somewhere
The most profitable times to invest historically are during periods of uncertainty.
It is during times like March 2009 (the S&P 500’s low point after the financial crisis) that the most remarkable rates of return have historically been made in US stocks. On the other hand, sometimes markets become substantially overvalued late in a business cycle, when the economy is already humming along well. Forward rates of return during these happy times tend not to be very good.
Unfortunately, these business cycles can last up to a decade or more. The best buying opportunities are often few and far between.
However, by having a global focus, there are frequently periods of uncertainty around the world that you can capitalize on. For example, Chinese large caps had a major sell-off in 2015, which was a great buying opportunity. Brazil had its largest recession in history from 2014-2017, which also made for a great time to invest. The decline in energy prices made Russia an absurd bargain for investors in early 2016.
And it’s not just these uncertain times. There is so much capital put to work in American markets that valuations tend to be high across the board. But in many emerging markets, much of the invested capital is foreign, there’s less money in play, and there are more market inefficiencies for the common investor to profit from. For example, emerging markets gained about 37% in 2017, simply because their valuations were low to begin with and investors started to realize their potential once again.
The Importance of Buying at the Right Price
Emerging markets performed poorly for a decade from 2007 to 2017. Basically flat:
Source: MSCI Emerging Markets Index
Was that because they weren’t growing? No.
It was because they were vastly overvalued in 2007, and their valuations declined over the next decade, which offset all of the growth.
For example, here is the stock market capitalization as a percentage of GDP for China, India, and Brazil over a 16-year period:
Source: The World Bank, 2018
Buying in the early 2000’s when valuations were low was smart, and resulted in great returns. Buying in 2007 when valuations were super high was not smart, and resulted in poor returns.
Over the longer term, this is even more powerful. Meb Faber, the CFO of Cambria Investment management, calculated that if you had invested in the cheapest 25% of countries in terms of CAPE, you would have crushed the S&P 500 for a 25-year period between 1993 and 2018 (orange line vs dark blue line):
Chart Source: Meb Faber, Cambria Investment Management
By investing in the cheapest countries, your returns would have been 3x higher than the S&P 500 after 25 years.
This report gives you multiple valuation metrics for each country, and gives an overview on what they mean and how to interpret them. That way, it helps show which countries are at historically low or reasonable valuations.
Download the Report
This PDF is available as an instant download for $19.95.
The report is over 100 pages, and provides an organized overview of the growth, stock valuation, debt, stability, and currency strength of 29 developed and emerging markets. But color-coded charts and an executive summary make it a concise read. You can quickly see which countries offer a strong investment thesis.
The focus of the report is for long-term fundamental investors, not short-term traders.
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