Fulcrum Issues - Examining the relative value of U.S. and emerging market equities looking forward
The relative value of U.S. and emerging market equities is a “fulcrum issue” facing multi-asset investors in the years ahead.
- Some of the best opportunities to profit from active asset allocation occur where there is a great controversy in the capital markets.
- While global equity markets often produce returns that are directionally similar, there can be meaningful dispersion in performance and valuation measures across regions, countries, and the securities that comprise them.
- The Shiller cyclically adjusted price-to-earnings (CAPE) is a useful starting point when contemplating the future cash flows of equities.
- Investors are extrapolating fundamental relationships into the future, which is contributing to the valuation premium associated with U.S. stocks and setting a high bar.