Over the past five years (since June 2009), the US economy has outperformed the superior emerging markets by 70 percent in terms of stock market performance. This performance gap was even more pronounced over the past year and a half, with the US market returning 34 percent and the broad emerging index actually down one percent.
Related Link: Is This Time Really Going To Be Different? A True Look At Current Financial Asset Valuations (PG, WMT, JNJ)
Another mark of the growing disparity between the US and emerging markets are recent CAPE (cyclically adjusted P/E) levels. These are price to earnings ratios that smooth out the effects of more short term cyclical ups and downs in earnings. The latest CAPE for US stocks stands around 25 (well above average) while CAPEs vary widely among emerging countries but most are between 5 and 20 with many in the 10-15 range.
So with this seemingly large valuation advantage in emerging market countries, should traders simply go ‘all In' and invest in something like the Vanguard FTSE Emerging Market ETF (NYSE: VWO)? One could probably do a lot worse, but there may be a better way.
By researching and tracking several metrics on ‘easily investable' individual emerging countries, an investor can greatly increase their chances at making greater returns and reducing risk versus owning a market cap weighted ...
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