Navigating Monetary Opportunities Across International Stock Markets

In the world of international investing, a notable trend is emerging: a growing preference for global stocks over US equities. This shift is driven by several compelling factors, with emerging markets and European equities leading the charge.

Firstly, the MSCI International Small Cap index has outperformed the MSCI International index (ex-US) by a significant 250 basis points annually. This strong performance suggests that smaller international companies may offer attractive investment opportunities.

European equities, relative to their US counterparts, are currently extremely discounted. The price-to-earnings (P/E) ratio of European equities stands at 13, compared to 21 for US equities, indicating a more favourable valuation for European stocks.

Moreover, European small caps have traded at a premium to international mid and large caps over the past 20 years, but the current valuation is at a slight discount. This shift in valuation could present an opportunity for investors seeking to diversify their portfolios.

Emerging markets, too, are attracting attention. They are trading one standard deviation below the 30-year average on a price-to-book basis at 0.5 of book value. This undervaluation, coupled with their potential for growth, makes them an interesting investment prospect.

The underperformance of emerging markets is evident in their performance since the beginning of 2021, having underperformed developed market equities by 55%. However, experts predict a recovery, with emerging markets leading the way in the shift towards global stocks.

Investors are drawn to emerging markets not only for their potential for recovery but also for their lower valuations. For instance, Total Shareholder Return yields are often significantly higher outside of the US. The UK total yield, for example, is more than double that of the US.

One such investment opportunity in Europe is Intesa Sanpaolo, a financial services provider in Italy. With a common equity Tier 1 capital ratio of 14%, a cost-to-income ratio of below 40%, and a dividend yield of 7%, Intesa Sanpaolo offers an attractive investment proposition.

Greece, another intriguing play, is attracting attention due to a 10% shareholder yield from the country's formerly distressed banks and an expected 2% economic growth this year, with tourism offsetting any tariff hit.

Martin Connaghan, co-manager of Murray International Trust, finds compelling valuation support in Europe and emerging markets, particularly in Latin America and Asia. JPMorgan's team also shares this sentiment, recommending India, Korea, Brazil, the Philippines, the UAE, and Greece as attractive investments in growing emerging markets.

While some countries may face turbulence due to Donald Trump's trade war, the impact can be nuanced. IT services firms like Infosys or Tata, for example, are less directly affected. Smaller companies, being more domestically focused, potentially insulate themselves from cross-border complexities.

In conclusion, the shift towards global stocks is a trend that is gaining momentum. Emerging markets and Europe, with their undervalued equities and potential for growth, are at the forefront of this shift. Investors seeking to diversify their portfolios and capitalise on these opportunities might find these markets an attractive proposition.