Where to find the world’s cheapest stocks

Many global stockmarkets have hit new all-time peaks this year. So where can you still find value?

Andrew Van Sickle
By
published
in Features

Many global stockmarkets have hit new all-time peaks this year, including Wall Street, which sets the tone for world markets, the FTSE 100, and the widely watched global gauge, the FTSE All World index. So is there any value left at these unprecedented prices?

One of the best measures of value is the cyclically adjusted price/earnings (Cape) ratio, which smooths out the earnings cycle by averaging out corporate profits over ten years. It can't predict a market's progress over the next few months, but "has proved a great indicator" for returns over the next decade, says John Authers in the Financial Times: the lower the initial Cape, the better the performance.

Meb Faber Research publishes regular updates on Capes, and its latest report suggests the value lies in eastern Europe. Greece's Cape has gone negative because earnings have been so poor over the past ten years. Russia's is positive, but in the mid-single digits, and it is followed by the Czech Republic, Turkey, Brazil, Poland, Singapore, Spain and Israel. Among the most expensive markets are Denmark, Ireland and the US, where the Cape has only been higher in the run up to the 1929 crash and during the dotcom bubble.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The Philippines, Mexico and Switzerland are also historically dear. The cheap markets "are cheap for a reason", says Authers. Few would feel comfortable taking a punt on Greece and Russia respectively ravaged by a downturn equivalent to America's Great Depression and subject to the whims of the Kremlin. "But that very discomfort may be crucial in creating the chance for a long-term profit."

Andrew Van Sickle
Andrew Van Sickle
Editor, MoneyWeek

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.

Latest