What are we looking for?
Attractive investments in promising markets outside North America.
The screen
Diversification is the key to sound investing. This means investing across different sectors, and across the different regions of the world. This is particularly important for Canadian investors as we tend to be overweight domestic stocks, and, as a result, also poorly diversified from a sector perspective because of the concentrated nature of the Canadian stock market. There is growing fear of a housing bubble in Canada and a great deal of political uncertainty surrounding our trading relationships with both the United States and China – the world's two largest economies. Now, more than ever, may be the time for investors to look abroad. But where?
Thomson Reuters' StarMine Intrinsic Valuation Model is a discounted cash flow model that assigns companies a percentile ranking using all globally listed stocks as a universe. For our screen, we aggregate the scores for all companies in each sector and region across the globe, weighted by market capitalization, to see where the most promising investments are worldwide. The chart shows only the top four sectors from a global perspective.
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What did we find?
According to Thomson Reuters' StarMine Intrinsic Value Model, emerging Europe is by far the world's most attractively valued region and energy is the single best sector. The two best areas for investment – from a valuation standpoint – are emerging Europe energy and utilities. Interestingly, North America overall is the second-worst region, ahead of only Latin America.
For broad emerging Europe exposure, BlackRock offers U.S.-listed exchange-traded funds that cover the broad market nationally for its three biggest economies in that region, which are Russia, Turkey and Poland. Those securities are iShares MSCI Russia Capped Index Fund (ticker ERUS), iShares MSCI Turkey ETF (TUR), iShares MSCI Poland Capped ETF (EPOL).
For specific exposure to the most promising sectors, Turkiye Petrol Rafinerileri is engaged in refining crude oil and exporting petroleum products. For utilities, Budapesti Elektromos Muvek Nyrt is a Hungarian supplier of electrical energy and water. These companies' intrinsic valuation scores are 97 and 92, respectively, and in addition to trading in their local markets they are also listed in the United States on the over-the-counter market. Their stock symbols are TUPRY and BPKTF, respectively.
Investors are advised to do further research before investing in any of the securities or regions discussed.
Hugh Smith, CFA, MBA, works in the financial and risk unit of Thomson Reuters and specializes in wealth and asset management.