Investors looking for cheap equity investments should look abroad, said Bob Armstrong, investment strategist at Schroders. Europe’s Stoxx 600 index and Japan’s Nikkei 225 hit record highs earlier this year, along with the S&P 500. However, the Stoxx and Nikkei trade at much more attractive valuations. Data from FactSet shows the former trades at 15 times trailing 12-month earnings, while the latter has a multiple of 23. The S&P 500, meanwhile, has an earnings multiple of 27. That trend should continue, offering investors the opportunity to find attractive investments at a cheaper valuation, Armstrong said. “There’s a lot of good stuff in international markets. There’s a lot of opportunity to win here,” the strategist said in an interview with CNBC. “While the last decade has seen a strong preference for the U.S. market over the international market, we think international diversification now makes a lot of sense again.” In particular, Armstrong is bullish on the Japanese market, pointing to the country’s emergence from a decades-long bear market amid global growth and economic recovery. He also pointed to the Tokyo Stock Exchange’s “Name and Shame” initiative designed to get companies to improve their profitability and corporate governance. Those measures, he said, have resulted in stocks that are more efficient with their cash and paying out more dividends with record buybacks. Year-to-date, the Nikkei is up nearly 20%, outperforming the S&P 500’s 17% rise. .SPX YTD Mountain SPX YTD Both the U.K. and Europe in general also look promising, according to Armstrong. Europe has continued to surprise on the upside, the strategist said, despite recession worries due to rising tensions between Russia and Ukraine and a potential energy crisis. Armstrong pointed to Europe’s first-quarter earnings session, which offered some of the best earnings gains in several years. In addition, these markets could see a boost if the European Central Bank and Bank of England begin cutting interest rates in the near future. “Both markets are more sensitive to the direction of short-term rates because they have more adjustable-rate mortgages than we do,” the strategist said. “They rely more on short-term financing through commercial banks than we do.” The Stoxx 600 has gained nearly 8% in 2024, while the U.K.’s FTSE 100 is up 6%. Armstrong didn’t name individual stocks, but investors looking to access these foreign markets can get it through exchange-traded funds. Here are three examples: iShares MSCI Japan ETF (EWJ): The fund is up 11% year-to-date and charges 0.5% in fees. iShares Core MSCI Europe ETF (IEUR): The ETF is up 6% in 2024. It has an expense ratio of 0.11%. Franklin FTSE United Kingdom ETF (FLGB): The fund is up 8% this year and has an expense ratio of 0.09%.
