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 2040.
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 have outperformed the S&P 500 and most other major indices over the past 20 years.
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 30 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 2019 Global Opportunities Investment Report:
Most investors have very little exposure to emerging markets, or to the developed markets that do still have great forward return potential.
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 30 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.
Even if you are purely a passive broad index investor, reading this report can give you more knowledge and confidence when it comes to understanding how the international portion of your portfolio works and what the underlying fundamentals are.
The report also shows the various advantages and disadvantages of various ETFs, since there are often multiple ways to invest in any given country.
Although the report is over 120 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 27 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.
The Importance of Buying at the Right Price
After a period of strong outperformance from 2000 to 2007, emerging markets performed poorly for a over decade from 2007 to 2018. Basically flat:
Source: MSCI Emerging Markets Index
Was that because they weren’t growing? No.
It was because they were overvalued in 2007 and from 2009-2011, 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 since the year 2003:
Data Sources: World Bank & MSCI
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.
Multiple studies from Professor Robert Shiller, Cambria Investment Management, Star Capital, and other sources show that buying country indices around the world when their valuations are low results in far superior returns than buying when they are high. This is true for the cyclically-adjusted price-to-earnings (CAPE) ratio, price-to-book, dividend yield, market capitalization to GDP, or other valuation metrics.
My report provides 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. Additionally, it goes beyond valuations by also considering growth, debt, and other metrics.
While of course I can’t guarantee it each year, the average performance of the top 3 ranked countries in last year’s 2018 report outperformed the average performance of the bottom 3 ranked countries by about 13% in dollar terms over the past ten months since the report was released.
More specifically, the top 3 all gave positive returns and averaged 9% returns for the ten months, while the bottom 3 all gave negative returns and averaged -4% returns.
While I don’t target one-year performance, it’s nice to see that the ranking system is off to a good start.
The data is now updated for 2019, and I’ve further refined my ranking system.
Download the Report
This PDF is available as an instant download for $19.95.
The report is over 120 pages, and provides an organized overview of the growth, stock valuation, debt, stability, and currency strength of 30 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.
I use one of the most trusted digital delivery platforms for secure payment, and this entire site is SSL-encrypted for additional security.
Download the report below: