The US equity market as measured by S&P 500 is up by just over 2% year-to-date. Compared to this return, most developed European markets in the negative territory with the exception of UK’s FTSE 100 which is up by about 10% since many companies in the index derive most of their revenue from emerging markets which are doing well this year. Among the emerging markets, all the major markets in Latin America are up so far this year.

A post by Russ Koesterich of Blackrock published yesterday noted that US stocks are expensive while international stocks are not. From the article:

As shown in the chart below, U.S. equities are trading at over 20x trailing price-to-earnings (P/E) and over 26x cyclically adjusted earnings (Shiller P/E). Valuations at these levels have historically been associated with lower forward returns. In contrast, equity markets in Europe, Japan and emerging markets appear somewhere between fairly valued and relatively inexpensive.

For long-term investors, the final point is particularly important. Value is often irrelevant in the short term, but over the long term valuations tend to mean-revert. For example, during the past 60 years, annual changes in the P/E of the S&P 500 had a -0.20 correlation with the change the following year.

Source: Are international markets back?,  Russ Koesterich, Blackrock Blog

Related ETFs:

• SPDR S&P 500 ETF (SPY)
• iShares MSCI Emerging Markets ETF (EEM)
• Vanguard MSCI Emerging Markets ETF (VWO)
• SPDR EURO STOXX 50 ETF (FEZ)

Disclosure: No Positions

One of the best time to buy stocks is when markets are volatile. Currently global equity markets are extremely shaky due to uncertainty over the US elections and investors’ fear of the Republican candidate winning the White House. Those who are able to invest new cash in the markets should buy stocks as markets swing wildly driven by greed and fear.

I came across an article by Andrew Craig of Plain English Finance at Money Observer site in which he notes the following three points for building wealth with equity investing.

First, you need to own all or, at least, most major assets in most major regions of the world. This should include cash, bonds, property, stocks, commodities (including precious metals) and a good split between the US, Asia and Europe (including Switzerland and the UK).

During the financial crisis of 2008-09, stocks plunged by over 50%. But gold increased by more than 20% in 2009 and oil prices hit an all-time high. So diversification across regions and assets is important.

Secondly, you should automate your investments by direct debit each month. This achieves ‘smoothing’ or ‘averaging in’. It removes you from the equation – which is usually a good idea.

The S&P 500 index in the US fell from 1,500 in October 2007 to the rather spooky level of 666 in March 2009 (a 56 per cent collapse. Ouch!). It then went from 666 all the way to north of 2,200 a few weeks ago and is now at 2,133 as I write (a 220 per cent recovery).

Automating the investment process eliminates trying to time the market and other human foolishness.

Finally, you must have confidence in your game plan and stick to your guns.

Professors Elroy Dimson and Paul Marsh of the London Business School have shown that investing in UK smaller companies has achieved an annual return of no less than 15.4 per cent going back to 1955! 15.4 per cent a year for 60 years!

Small caps usually yield higher returns than large caps. So it is not surprising that British small caps richly rewarded long-term investors. The key point here is that investors should hold high-quality stocks for years or even decades in order to build substantial wealth.

Source: Why stock market crashes don’t matter, Money Observer

Here are some picks that investors can consider adding to their portfolios:

Railroads: Canadian National Railway Co (CNI), CSX Corp (CSX),Norfolk Southern Corp(NSC), Union Pacific Corp (UNP)

Consumer Staples: Kimberly-Clark Corp (KMB), General Mills Inc (GIS), Reckitt Benckiser Group plc (RBGLY), Unilever NV (UN), Nestle SA (NSRGY)

Utilities: NextEra Energy Inc (NEE), Southern Energy (SO),Exelon Inc (EXC), Edison International (EIX), Empresa Nacional de Electricidad SA (EOC)

Consumer Discretionary: Diageo PLC (DEO), Church & Dwight Co Inc (CHD),British American Tobacco PLC (BTI)
Disclosure: Long CNI, CSX, UNP, NSC, RBGLY, GIS and NEE