Fear and greed are powerful motivators, especially when it comes to investing. In this blog, I speak to those who are fearful, and are looking for safety, potentially outside the US. I look for the regions of the world that are currently priced as “Value”, defined as low Price/Earnings and high dividend yield. The following graph shows the current situation.
As you can see, the US is currently not the best “Value”, having the highest P/E and the second lowest dividend yield. But it’s not clear from this graph which is the best value. On a P/E basis, Emerging Markets and Asia X Japan are the better buys, but Australia-and-New Zealand and the UK are the higher yielding.
To resolve the confusion, I’ve created a composite measure that adds earnings yield (the reciprocal of P/E) to dividend yield, and come up with the following scores:
And the winners are Australia-and New-Zealand and Emerging Markets. If you’d like to stay closer to home, Canada looks good. The run-up in US stocks has made them expensive relative to the rest of the world. 18 months ago Japan would have been the best value play, but its recent performance has changed that.
Now you know. I hope you find this useful.