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

By Oliver Collin, Co-Head of European Equities
 

We believe European equity markets are extremely cheap at current levels, both in absolute and relative terms, which is typically a great starting point to generate future returns. 

With global growth in 2024 looking to be only moderate and interest rates likely to remain at higher levels than we’ve seen for a decade, the simple case for investing in ‘Growth’ or ‘Value’ factors are more difficult. 

Instead, the opportunity is for fundamental stock picking – looking for those companies that are improving returns for their shareholders and are changing for the better.

By William Lam, Co-Head of our Asian & Emerging Markets Equity team

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.

By Stephen Anness, Head of Global Equities
 

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.

By Martin Walker, Head of Henley-based UK Equities
 

UK equities offer attractive exposure to the ‘Value’ factor. Internationally orientated and cash generative companies are trading at valuations often below global peers.

Returns from the FTSE All-Share Index have a low correlation with US markets, through a different mix of companies, but still have scale, breadth, and depth.

The UK offers attractive levels of equity income that are well covered by earnings, and that we believe will become increasingly important to investors seeking protection against inflation.

But we believe inflation remains a key source of risk. We expect the oil price to remain elevated, ahead of current consensus, and wage inflation to prove more durable.

Such is the likely persistence of inflation, that we have become increasingly concerned at the possibility of policy error by central banks.

Despite caution arising from macroeconomic views, we remain optimistic at the medium to long-term outlook for UK equities, particularly on a relative basis. 

By Kevin Holt, Chief Investment Officer for US value stocks
 

While growth stocks have performed well in 2023, we believe higher rates and economic uncertainty is the environment where value has historically done well. Newer companies in the portfolio have implemented major expense reductions.

Even with higher inflation, consumer demand has remained strong, and many companies have seen a rebound in sales. Stronger revenues and lower fixed costs should lead to higher cash flows for undervalued businesses, creating the benefit of operating leverage.

We feel a recession is still likely, but the chances of a deep recession are relatively low. The US Federal Reserve (the Fed) has been raising interest rates since early 2022. So, the risk is the ultimate result of those rate hikes, and the possibility of more rate hikes.

At this point, we don’t see anything that would prompt the Fed to cut rates anytime soon, so the possibility of a near-term deflationary environment is low.