Are you chasing returns in the US markets?

[Guest OliverSmithIG]

The last ten years have seen US equities outperform European equities. In GBP terms the S&P 500 gained 225% in the decade to the end of July 2017, while the MSCI Europe Index lagged significantly behind with a gain of 74%.

 

The majority of the US out-performance was generated after the 2008-2009 financial crisis, during a period where European equities were facing sovereign debt problems in the eurozone periphery and deflation loomed until the ECB began their program of quantitative easing.

 

US stocks now trade on a price-to-book ratio of 3.1 times. With MSCI Europe at 1.8 times this represents a relative 72% valuation premium for US stocks. While US has always traded at a premium to Europe, right now it is approaching the most expensive it has ever been based on this valuation measure.

 

As an investor, which valuation measures would you look at to say whether US equities are currently expensive or not? 

 

Have a question for me? 'Ask an expert' using the comments section below and I'll make sure to reply. This synopsis is part of a wider article here.