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A valuation observation

Vert
edited December 2013 in Fund Discussions
Just wondering if anyone finds this significant. I went to Morningstar and looked up the valuations for Vanguard's Total Stock Market Fund (VTSMX) and the International Total Stock Market (VGTSX). Looking at the ratios of VGTSX/VTSMX we get:

P/E = 86.7%
P/B = 66.8%
P/S = 63%
P/CF = 61.7%
P/DIV = 142.9%

That looks to me as if a pretty big gap has opened up between foreign and domestic stocks. Efficient Market? Value Opportunity overseas? Stay away from it all?

Stan

Comments

  • CharlesCharles
    edited December 2013
    Hi Stan.

    Can't speak to these numbers, but the implication is consistent with some discussion in David's commentaries, on the board, and with some of the talking heads (eg., Blackrock analyst this morning discussing 2014 guidance)...

    US valuations modestly stretched, not that there aren't opportunities just harder to find right now, and valuations better overseas...that said, no body seems too bullish on international growth, including EM.

    At least that's what I'm hearing through my own biased headset=).
  • STB65
    Short term, it all depends on whom the others think is the prettiest girl at the dance.
    Long term, I like EM, but I'd average in.
  • InvestorInvestor
    You should ask yourself what has been the long term trend of these two indices. They do not necessarily will be 100% at neutral valuations.
  • AndyJ
    edited December 2013
    I agree with Investor - remember reading at one point that Europe in particular trades at a discount to U.S. most of the time (sorry, no reference). If that's correct, to figure out what level of bargain ex-U.S. might be at any point, you'd need to calculate the equivalent of a CEF z-statistic ... i.e., the difference from an average discount.

    I agree with Charles; there probably is a bit of a foreign discount to U.S. right now, but Japan has run pretty far already, Europe is still a long way from recovered, and the major EMs are hanging between commodity-export and consumer-driven models with no guarantee of a flawless transition.

    I like to follow the GMO 7-yr. asset class forecasts and see how they change from month to month; EM equity and EM debt are the only classes they cover with a projected annual return at or above 3% real right now (other than timber, which they have at almost 6%).

    Here's what GMO's Ben Inker wrote about relative valuations in their last quarterly letter:

    "To be clear, we don’t consider non-U.S. equity markets a screaming buy. But as value managers listening for any assets, anywhere, that are screaming to be bought, the world currently sounds a deathly quiet place. The hoarse whisper of “buy me” coming from European and emerging equities (as well as the polite cough for attention coming from U.S. high quality stocks) comes through loud and clear. "
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