Global Markets: Finding Relative Value In An Expensive World

 | Nov 30, 2021 12:15AM ET

This post was originally published at TopDown Charts

  • Valuations have trended much more expensive this year and it’s harder to find pockets of absolute value
  • Relative value can still be seen in three segments of global markets
  • This week’s featured chart illustrates how the cheap have gotten cheaper versus the basket of most expensive industries

Year-end approaches, and it’s a natural time to reflect on just how far global markets have come. Another year of stellar gains for growth assets and property markets—due, in part, to massive fiscal stimulus and monetary easing in 2020—has made many asset classes richly valued. Finding attractively priced niches has become exceedingly difficult. Our valuation disconnect into context, the US PE10 ratio is just over double that of the median PE10 for ex-US markets. The breadth numbers are also something to behold: 95% of countries are at least 20% cheaper than the US on a PE10 basis. These valuation gaps seem to grow wider each week as the total US market outperforms foreign shares. Year-to-date, US stocks are up 23% while ex-US equities are up just 5% (total return). That’s the biggest annual spread in favor of US equities since 1997.

An Industry-Level Perspective/h2

Readers are familiar with one way we like to look at relative value in the equity space: comparing cheap versus expensive industries in the US. Our featured chart illustrates that the last four years have been a period where growth has crushed value.

The valuation differential between the cheapest versus most expensive parts of the market is at a 20-year extreme. Only the dot-com bubble and early 1970s Nifty Fifty boom were more stretched.