The World Over, Good Values Are Harder to Find

Roland Czerniawski: Today, we are taking a look at world valuations through the lens of Morningstar's quantitative price/fair value metric. This chart reflects world valuations at the end of the first quarter of 2015. Here, we can see that world valuations do not appear to be as attractive now as they were last quarter. The United States appears slightly cheaper, being now only 1.1% overvalued compared with 4.3% last quarter. Most valuations abroad, however, have increased rather dramatically. Europe, after implementing its massive quantitative-easing program, had its valuations go up significantly due to the stock market rallies in many of its member states. Germany is now 16.1% overvalued, compared with 4.4% last quarter.

China, which already appeared significantly overvalued last quarter, continued to rally, and it remains the most overvalued country on the chart. Even some of the most deeply undervalued countries from last quarter, like Brazil and Russia, do not appear as attractive now. Brazil is now 2.2% overvalued, and Russia is close to being fairly valued. Interestingly, the only developed nation that is undervalued now is Australia, but only by a small margin of about 2.4%.

Although the U.S. stock market remained relatively tame during the first quarter, most of the world has actually rallied. The rise in global equity markets might have gone unnoticed by many unhedged U.S. investors because of the rapid rise of the U.S. dollar at the same time. However, U.S. investors should be aware that most of the world now appears overvalued and does not present as many attractive opportunities for investment.