With US valuations ostensibly high compared to global peers, many investors are asking themselves if now is the time to dip their toes into international equities. They’re asking the wrong question. It’s better to focus instead on optimal sector allocation. After all, international stocks are mostly just a means of diluting one’s exposure to technology companies.

In fact, the entire narrative about “relatively expensive” US stocks is a bit misleading. The S&P 500 trades at about 20 times forward earnings, versus about 14 times for all other developed markets. The US index looks expensive principally because it has the largest weightings in tech (Nvidia Corp., Microsoft Corp., etc.) and communication services (Meta Platforms Inc., Alphabet Inc., etc.) by a wide margin. Those categories make up about 38% of the S&P 500, and just about 13% for the rest of the developed world. In America, as in other countries, investors have been willing to pay up for the potential, however uncertain, that strong growth in those sectors will continue.

QOSHE - Nvidia's Scary Valuation Is No Reason to Head Overseas - Jonathan Levin
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Nvidia's Scary Valuation Is No Reason to Head Overseas

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22.02.2024

With US valuations ostensibly high compared to global peers, many investors are asking themselves if now is the time to dip their toes into international equities. They’re asking the wrong question. It’s better to focus instead on optimal sector allocation.........

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