Where you’ll find the cheapest and most expensive stock markets in the world

At current levels, we believe European equity markets are exceptionally low priced. Both in absolute and relative terms. This is typically a great starting point to generate future returns. 

With inflation rates at high levels, but gradually coming down investing is more challenging than usual, and simply investing based on “value” or “growth” factors have become difficult. Therefore, the key to unlocking this potential is to focus on fundamental stock picking.

That means looking for those companies with improving returns and are changing for the better.

Asian markets continue to trade well below their long-term historic average level and at a significant discount to developed markets, particularly the US. We believe there’s scope for this to narrow, and that Asia remains an attractive place to invest over the medium-term, with divergence between countries and sectors providing attractive opportunities. 

Given that our investment style is driven by valuations, we’re looking for stocks that are priced below our estimate of their fair value.  Inherently, that leads us to lean into areas that are cheaper, relative to earnings or book value, than they have been historically.

Investing in Asia, naturally we’re concerned about geopolitical risks, particularly between China and the US. But we do believe that the geopolitical risks are already factored into the equity risk premium of the companies we’re invested in. 

We would note that many US companies are exposed to these geopolitical risks, and this doesn’t seem to be reflected to the same extent in their valuations.

The key advantage to investing globally is the breadth of the investable universe. There's always something going on, from perhaps some sort of financial market issue, which has lowered valuations in any given region. Perhaps some geopolitical tension that's creating issues.

The kinds of companies that we want to be investing in now is where the cash flows and dividends can continue to grow for many years. This ultimately is done off the base of low valuations can provide attractive returns to the shareholders.
 

Investing globally is really important when considering risk management because some domestic markets can be very skewed in terms of their makeup, either to big companies or big sectors or it can even be more nuanced in terms of factor/covariance risks.

That can drive a degree of correlation bias / unintended risks within any given region. We are very cognisant of this and manage it actively, as such we are pleased to say that the majority of risk is stock specific – this allows us to do what we do best and that is stock picking.

UK equities offer exposure to many high quality, cash-generative companies trading at valuations below global peers, even after taking account of differences in return-on-capital.

They offer compelling income streams and capital growth that can provide a valuable defence against inflation. Sector exposures are very different to other global equity markets – bringing additional diversification benefits.

Key risks would be prolonged global recession, and a return to ‘zero-bound’ inflation and interest rates; to ‘free money’ that was a feature of global markets following the GFC. In such environment cash generative qualities may be de-emphasised in a search for the ‘next big thing’.

Given the Federal Reserve has lowered interest rates, the economic environment should be more accommodative to businesses and consumers. With more certainty about interest rates, investors have recently rotated out artificial intelligence focused companies that had led for much of 2024, and into small cap and value stocks which have the potential to benefit from lower interest rates.

Geopolitical risks from the Russia/Ukraine and Israel/Hamas wars are major concerns, if these wars spread to other countries in those regions.  These risks could cause major shifts in the supply and demand of oil prices, affecting the global economy and shocks to the capital markets.