One of the things I pay close attention to is the valuation of whatever investment I am interested in buying. I like to know how it compares to other like investments and also how it compares to itself historically. When I say valuations, I don't mean the price. I mean the price relative to some production metric. That metric could be revenue, earnings, dividends, free cash flow, etc. You can do this for individual companies, industries, sectors, or even countries.
For comparing valuations, one of my go-to resources is Meb Faber's Idea Farm website. He has a section where he posts quarterly updates on how major countries with stock markets rank in terms of key valuation metrics. He uses cyclically adjusted valuation metrics which smooths the metric over a multi-year time-period, 10 years in his case. He does this for four valuation metrics: CAPE (price-to-earnings), CAPD (dividends), CAPCF (cash flow), and CAPB (book value). My personal two favorites are CAPE and CAPCF since they show truly what the underlying businesses are generating in terms of profits and cash flow.
You can view current and historical global valuations here: https://theideafarm.com/t/Quarterly-CAPE-Ratios
The latest as of this posting from Q4 2024 shows a major dispersion across countries. There are some very expensive countries like the U.S. and India. Their CAPE and CAPCF are above 35 and above 22 respectively. You can take the inverse of these numbers to calculate a yield which equates to 2.9% and 4.6%. That is very little return in comparison to some of the other countries. Now there may be underlying reasons for this because these two countries have also seemed to grow earnings the fastest over the last decade. However, the odd thing about valuations is investors than think that trend will continue into the future. History has shown that it is actually very unlikely for the trend to continue. Thusly, these countries should sport lower valuations to compensate for tougher growth goals going forward but they don't.
On the flipside, there are some countries like Columbia and Brazil with very low comparative valuations. Their CAPE and CAPCF are around 9 ad 5 respectively. In terms of yield, that equates to more than 10% and 20%. Would you rather put your money in an investment earning more than 10% or less than 3%? The answer is obvious to me. Just like growing countries get valuation premiums thinking the good times will continue, countries with lower growth get valuation discounts thinking the tough times will continue. Very rarely do they.
With my personal investments, I have a certain amount allocated to investing in foreign countries through convenient ETFs. Take Brazil and Columbia; iShares offers ETFs for both countries under ticker symbol EWZ for Brazil and ICOL for Columbia. I like to check in quarterly and track if anything has changed then reallocate to different countries as I see fit.
Meb Faber's ETF company called Cambria Investments also has an easy button where he does this work for you. One of his ETFs called Global Value with ticker symbol GVAL invests in the countries with the lowest CAPE valuations and also takes it a step further by investing in the specific companies in those countries with lower valuations. The historical returns aren't great, only averaging 2.4% per year since inception (as of 1/31/25) but that is because non-U.S. markets have been challenged keeping up to U.S. performance over the last 15 years, but that trend may change. I've invested a portion of my foreign allocation in GVAL but I also like doing some of the country weighting myself.
Here are the latest country-by-country valuations as of 12/31/24:
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