GLOBAL investors seeking value have been switching money into Asian and emerging markets. But following steep rallies from the depressed levels in December, several analysts are cautioning that markets are overbought.
“The rotation from developed markets equity funds to emerging markets has rolled on,” said EPFR Global Monitor, adding that the trend has been continuing for 13 out of the last 15 weeks.
Value mingled with potential growth were investment incentives. The cyclically adjusted price-earnings (CAPE) ratio, for example, has shown that global stock markets which are relatively cheap include Russia, Singapore, South Korea and China. In contrast, the most expensive are the US, Ireland, Switzerland, India and Canada. The UK and Japan are rated reasonable, but with unexciting value. StarCapital, a German fund management firm, collates the CAPE for international markets. Based on the work of Robert J Shiller, a winner of the Nobel Prize for Economics, the CAPE is the ratio of the current market price of an individual share or stock index over the average inflation-adjusted earnings of the 10 preceding years. StarCapital determines the relative attractiveness of 6,500 companies from 66 countries on a monthly basis.
|Global Stock Market Valuations|
|Country||CAPE||PE||Dividend Yield %|
Wall Street the Key to emerging market performance
Despite better values in Asia and emerging markets, the US and other global investors are mainly influenced by developments on Wall Street and the US economy, according to a paper, ETF Arbitrage and International Correlation.
Major Wall Street Rally
With this in mind, global investors have to be mindful that there has been a considerable Wall Street rally since December. The S&P 500, Dow Jones Index and Nasdaq tech index have fallen slightly from their recent 2019 peaks, but since their late-2018 lows, the Nasdaq index is still up by 19.3 per cent as at last Friday. The S&P 500 has risen by 17.4 per cent and the Dow Jones Index by 16.9 per cent. In contrast, Japan has only rallied by 7.5 per cent, China’s 50 leading stock Index by 7.7 per cent, London’s FTSE 100 Index by 9.1 per cent and Germany by 7.6 per cent.
According to traders, hedge funds and other speculators had turned bearish about US stocks in December. They had sold them short on the
Strategists at Charles Schwab caution that Wall Street is overbought, even though US stock market indices and the so-called
The other worry is Brexit. If the UK Parliament does not accept Prime Minister Theresa May’s expected concessions from the European Union, Britain could crash out with no deal on March 29.
In the meantime, global surveys of directors show that they are expecting a business slowdown in Europe, while China’s economy is also vulnerable from ongoing trade tensions
© Copyright Neil Behrmann
This article was first published in The Business Times, Singapore Neil Behrmann is London correspondent of The Business Times. Jack of Diamonds his thriller on global diamond mining and smuggling, has recently been published. It is the sequel to the thriller, Trader Jack, The Story of Jack Miner.
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