Market Monitor: Peter Mallouk, Creative Planning President & Chief Investment Officer
I think weakness across all equities (including in US) is temporary and added weakness overseas due to trade war talk is also temporary. Everyone’s worried about overseas due to Italy, Iran, North Korea, political instability and a trade war – we aren’t.
Shares Emerging Markets (IEMG)
• potential for emerging markets bigger even though risk is higher (as is always the case with emerging markets)
• the risk for a trade war is factored into emerging markets, but we don’t see a trade war developing
Vanguard Developed Markets (VEA)
• right now P/E ratio for developed markets outside U.S. is below U.S. markets
• fear of trade war overdone
VSS (Vanguard all world ex-US small cap)
• Small caps have greater potential growth
• Many U.S. small caps have already gained, so ex-US has stronger upside
Theme: All are overseas which are under pressure right now as everyone is concerned about a trade war. But we don’t see a trade war developing, so we see strong value and comparative value — P/E ratios below US markets — compared to US right now.
Risks: The reasons for the relative bargains overseas — fears of a trade war — are temporary, which is why we see value. Eventually trade war fears will subside and there will be a regression to the mean (normalcy, which means bigger values in U.S.).
Upside potential of these ETF’s: expect all to outperform the US by several percentage points on average over the coming years.