Opportunities in Europe and emerging markets (Photo: freepik, sharperstop17)
The valuations on the global stock markets could hardly be more different: While the USA and India are considered high-flyers with their high prices, Brazil and Korea lure like undiscovered treasure chests with attractive entry opportunities. A recent analysis of Taunus Trust reveals where investors can find the best return potential – and what stumbling blocks need to be avoided.
The discrepancy on the stock exchanges: expensive vs. cheap
The global stock markets are in a very heterogeneous state. Like an overheated cauldron, the USA stands out from the global stock market with its extremely high valuations. The Shiller CAPE, a cyclically adjusted Price-earnings ratio (P/E ratio)is currently 35.4, around twice as high as the historical average.
Another indication of overvaluation is the price-to-book ratio (P/B), which is 5.1. India is also one of the most highly valued markets in the world, which should caution investors.
In contrast, countries such as Brazil, Korea and China are characterized by comparatively favorable valuations. In these markets, Shiller CAPE values are between 9 and 12 and P/B ratios are between 0.9 and 1.4. According to Norbert Keimling, capital market expert at Taunus Trust, historical analyzes show that such attractive valuation levels are often followed by real returns of 9 to 11 percent per year – over a period of 10 to 15 years.
Source: Taunus Trust
Cluster risk in global ETFs
A closer look at the composition of many global ETFs such as MSCI World reveals a dangerous trap: more than 70 percent of the index consists of US stocks. This dominance is reminiscent of a shaky house of cards – impressively tall but vulnerable to shaking.
For investors seeking global diversification, this poses a significant concentration risk. Given the high valuation of the US market, Taunus Trust predicts low long-term returns – only 0.1 percent annual growth is expected based on historical data.
Opportunities in Europe and emerging markets
In comparison, Europe and the emerging markets offer attractive alternatives. German stocks are currently trading around 20 percent below their long-term average, with a Shiller CAPE of 17 and a P/B ratio of 1.7. The long-term return expectation is around 7.2 percent per year. This results in potentially impressive values for the DAX: According to Keimling, the index could rise to 50,000 to 88,000 points by 2038.
There are further lucrative opportunities for investors in the emerging markets, particularly in China, Korea, Singapore and Brazil. With currently favorable valuations and promising long-term growth opportunities, real annual returns of up to 10 percent are possible.
Source: Taunus Trust
Sector adjusted perspective
In order to avoid distortions caused by different industry structures, Taunus Trust uses sector-adjusted valuation metrics. Although this approach puts the attractiveness of individual markets such as Brazil into perspective, it does not change the fundamental statements. Despite these adjustments, the emerging markets and Europe remain the regions with the best return prospects in a global comparison.
Cheap markets in focus: ETF ideas for bargain hunters
| ETF name | region | WKN | Fee pa | Development 1 year | Development 3 years | Development 5 years |
| Invesco FTSE RAFI Emerging Markets | Emerging markets | A0M2K | 0.49% | +20.24% | +14.16% | +22.22% |
| Vanguard Germany All Cap | Germany | A2JF6S | 0.10% | +18.80% | +16.83% | +33.84% |
| Franklin FTSE Brazil | Brazil | A2PB5U | 0.19% | -20.94% | +22.60% | -21.87% |
| Amundi MSCI Korea | Korea | LYX016 | 0.45% | -5.59% | -19.95% | -1.21% |
| iShares Core FTSE 100 | Great Britain | 552752 | 0.10% | +14.84% | +23.23% | +31.49% |
| Xtrackers CSI 300 Swap | China | DBX0M2 | 0.50% | +23.53% | -16.38% | +17.52% |
| Xtrackers MSCI Singapore | Singapore | DBX0KG | 0.51% | +37.01% | +29.23% | +23.41% |
| SPDR MSCI EM Asia | EM Asia | A1JJTG | 0.55% | +20.36% | +0.79% | +16.96% |
| Xtrackers MSCI World ex-USA | Global ex USA | DBX0VH | 0.15% | n/a | n/a | n/a |
Source: FWW / Data as of January 14, 2025
Conclusion: Diversification is key
The current valuation differences on the stock markets are like an urgent warning: Anyone who bases their assets on just one pillar can easily stumble. A broad diversification, on the other hand, offers stability and opens up opportunities to achieve attractive returns even off the beaten track.
Anyone who only relies on the USA risks disappointment in the long term, as the high valuations are already likely to weigh on future returns. Significantly more attractive opportunities exist in Europe, Japan and the emerging markets. With a well-thought-out allocation, investors can not only minimize risks, but also achieve above-average returns.
Disclaimer:
Not investment advice. No call to buy or sell securities.