Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Global Markets: Finding Relative Value In An Expensive World

By Mike Zaccardi, CFA, CMTStock MarketsNov 30, 2021 12:15AM ET
Global Markets: Finding Relative Value In An Expensive World
By Mike Zaccardi, CFA, CMT   |  Nov 30, 2021 12:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

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 Weekly Macro Themes report investigates the valuation situation among stocks, bonds, property, and commodities.

US vs. Ex-US Relative Valuation

From a relative value perspective, the US is extremely expensive versus the rest of the world. This is not breaking news to market participants, but our indicators show the trend has turned more extreme in recent months.

To put the 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

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.

US Industry Valuations: cheaper vs expensive
US Industry Valuations: cheaper vs expensive

Absolute Valuations Still Pricey

This week’s report also investigates the price-to-book value on the three industry areas broken out by valuation: the upper quartile, median, and lower quartile. It turns out that the most expensive quartile of industries is now pricier than it was at the dot-com bubble peak.

Even the most inexpensive 25% of industries is expensive relative to its history.

Cyclical Value and Defensive Value

We’ve also outlined “cyclical value” (energy and financials) versus “defensive value” (healthcare, consumer staples, utilities) before. These two buckets are cheap compared to the S&P 500. Energy and financials, despite strong returns over the last year, show better relative value today than during the dot-com bubble. Defensive value stocks are turning cheaper, too.

As the tech super-sector (including the IT sector with names like Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL), and Tesla (NASDAQ:TSLA)) grows its share of global market cap, it leaves the rest of the market and world with a generally cheaper look.

Global Small Caps versus Large Caps

One slice of the global market, small caps, continues to sport a discount versus global large caps. Our global small versus large valuation indicator shows that the smalls are about one standard deviation cheaper than global large caps after approaching breakeven earlier in 2021.

Bottom Line: Pandemic stimulus measures produced many unintended consequences; a key one being making about every asset class expensive. Even commodities are no longer cheap. Still, we can at least find relative value in global versus US, value versus growth, and small versus large equities.

Global Markets: Finding Relative Value In An Expensive World

Related Articles

Michael Kramer
NASDAQ Could Fall Another 13% By Michael Kramer - Jan 28, 2022 2

This article was written exclusively for Investing.comThe NASDAQ Composite has fallen sharply to start 2022, down nearly 13%. But don't expect the index to race back to record...

Global Markets: Finding Relative Value In An Expensive World

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
simone scelsa
simone scelsa Nov 30, 2021 2:41AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
A rational analysis in an irrational world. I'm afraid they will keep discovering new variants until the 2030s, hance more restrictions, more stimulus, more retail irrational behaviour are on the horizon.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email