After a turbulent 2022 for global equity markets, many regions are now showing more attractive valuations. The United States and India are notable exceptions, however, highlighting the importance of global portfolio diversification in the year ahead.
Global Equity Valuations
At the start of 2022, global equity valuations were very stretched. After an extremely difficult year which saw some indexes fall by 20%, equity valuations have become more attractive, with some global markets even considered “cheap”.
Today, for example, Germany was only cheaper 9% of the time, and the UK only 13% of the time. In emerging markets, China has been cheaper around 40% of the time, while Brazil has rarely been more attractive.
On the other hand, in the opposite direction, two major markets stand out. In India, its relatively small decline of 8% last year has not led to a drop in valuations as large as in other global markets. In the US, despite declines of 20% and 32% in the MSCI large cap and growth indices respectively, markets were still more attractive more than 80% of the time.
While the expensive valuations of the past decade have not presented barriers to the upside, cheap valuations do not necessarily present barriers to the downside, particularly if equity fundamentals remain weak. Watch for potential improvement in region-specific growth prospects, driven by the reopening of China or lower gas prices in Europe, which, combined with the valuation chart, could help determine where to stand. find the best opportunities.
Over the coming year, the impending US recession will weigh on the overall outlook for the equity market. For investors, however, relatively attractive valuations outside of the US suggest opportunities exist.
This article is originally published on allnews.ch
