As US stock market valuations continue to soar, investors are being urged to consider further diversifying their portfolios with undervalued opportunities in European and UK stocks.
The analysis from Nigel Green, the CEO and Founder of one of the world's largest independent financial advisory, asset management and fintech organisations, comes as Wall Street's S&P500 registered its 21st all-time high finish of the year last week, largely based on hopes of interest rate cuts down the line and the AI boom.
He says: "US stocks are currently trading at lofty valuations when compared to historical norms and international counterparts.
"The trailing price/earnings ratio on the S&P500 stands at approximately 27 times, signalling that it would take 27 years for the average S&P 500 company's most recent earnings to equal its current market capitalisation.
"In stark contrast, the same ratio for the FTSE 100 sits at a modest 11 times, the German DAX at 15 times, and Asian indices such as the Nikkei 225 and Hang Seng at 16 times and 9 times, respectively."
But the deVere CEO says it highlights a lurking concern on Wall Street regarding the significant concentration of tech giants within the S&P500 index, raising questions about market stability.
"With Big Tech companies comprising roughly a third of the index's total market capitalisation, there's a growing acknowledgement of the potential risks posed by such sector concentration."
However, amidst these concerns, there's a palpable sense of optimism regarding the prospects of other regions, namely European and UK stock markets.
"We foresee a period of catch-up for these markets, fuelled by central banks' intentions to cut rates, which would usher in a new economic cycle, and as a raft of key data is looking to turn positive for the region.
"This anticipated shift is expected to be propelled by the substantial weight of economically cyclical stocks prevalent in major European indices compared to the S&P500."
Among the indices poised for growth, the FTSE 100 stands out as particularly enticing.
"Offering exposure to a diverse array of multinational corporations trading at relatively low valuations, the FTSE 100 presents an attractive opportunity for investors seeking global exposure.
"Despite its association with the UK, only a fraction of the combined revenues of FTSE 100 companies originate within the UK itself, making it a truly global index poised to benefit from the resurgence of international markets."
While concerns persist regarding the valuation levels and sector concentration within the US stock market, the broader global landscape presents compelling opportunities for investors.
Diversification remains a cornerstone of prudent investing, especially in times of heightened uncertainty.
By spreading their investments across different regions and sectors, investors can mitigate risks associated with over-reliance on any single market or industry. This not only provides a buffer against market downturns but also allows for participation in the growth potential of diverse economies around the world.
Nigel Green concludes: "Investors should be including additional exposure to undervalued European and UK markets, topping up their portfolios at lower entry points while best-positioning themselves against risk before the valuations increase as the economic cycle shifts gears."
