Should I Invest in International Stocks in 2018? This is a common question on investor’s minds. The investing media is rife with content on overvaluation of U. S. stocks. Warnings of a correction in U. S. stocks abound. Are international stocks attractive compared to U. S. stocks? In this post, I compare the valuation of stocks and prospects for growth in the U. S. versus those in international markets. I also analyze the potential for changes in currency exchange rates impacting international stock returns and answer the question: Should I Invest in International Stocks in 2018?
Investing in international stocks paid off in 2017 after many years of underperformance vis-à-vis U. S. stocks.
Stocks in developed international markets and emerging international markets outperformed U. S. stocks for the first time after 2012.
Developed market stocks as measured by the MSCI EAFE Index gained 25.0% in U. S. dollar terms last year.
In comparison, emerging market stocks as measured by the MSCI Emerging Markets Index gained 37.3% in U. S. dollar terms.
Meanwhile, the MSCI USA Index designed to measure the performance of the large and mid-cap segments of the U. S. market rose 21.9%.
Should I Invest in International Stocks in 2018: Valuation Perspective
Stocks in international markets trade at attractive valuation metrics compared to stocks in the U. S. even after their recent outperformance.
According to MSCI, stocks in the MSCI EAFE Index and MSCI Emerging Markets Index trade at a forward price-to-earnings ratio of 15.0 and 13.0, respectively compared to a forward P/E ratio of 18.9 for stocks in the MSCI USA Index.
Should I Invest in International Stocks in 2018: Growth Perspective
The World Bank forecasts global economic growth to edge up to 3.1% in 2018 from 3.0% in 2017.
The bank, however, expects growth in advanced economies to moderate slightly to 2.2% in 2018 from 2.3% in 2017 as central banks gradually remove their post-crisis accommodative monetary policies and an upturn in investment levels off.
