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Asian stocks are looking expensive. Which could be good for U.S. shares

August 13, 2009 @ 11:28 pm | Breaking News, Leading Indicators | 9 comments

Asian stocks were rallying again as I wrote this about midnight New York time on Wednesday August 13.

Nothing really surprising about what kind of companies were leading the move. Gainers included miners (BHP Billiton (BHP), the world’s largest mining company), commodities trading companies (Japan’s Mitsubishi), and construction companies (such as Australia’s Leighton Holdings.)

In other words, the “global economy is recovering” theme is still driving stocks.

As long as Asian markets believe, they should be able to drag the U.S. stock market higher too. A global economic recovery certainly isn’t bad news for U.S.companies in the commodities, construction, and export sectors.

But the relative valuations in Asian and non-Asian stock markets may help U.S. stocks too.

The MSCI Asia Pacific Index is now up about 62% from its March 9 low.

That’s enough to make Asian stocks relatively expensive in comparison to other equities. Stocks in the Asian index are trading at about 25 times estimated earnings, Bloomberg.com calculates. The MSCI World Index, on the other hand, is trading at a mutltiple of 17 times expected earnings.

So think of it this way, iI you want to invest in the globl recovery theme, you have a choice of Asian leaders at 24 times earnings or U.S. or European laggards in the same sectors at a much lower multiple.

See why Asia’s rally could increasingly rub off on other world markets?

Now lets hope the global economy is actually recovering from its slump.

9 Comments

  1. gividen
    gividen on August 24, 2009 at 3:51 am

    LOL Call me crazy but I say this whole recovery/rally thing is going to come crashing down around us because of the bond bubble. Who knows when though. The tech bubble lasted longer than any sane person would have thought. The mortgage bubble lasted longer than even the crazy people thought it would. Why didn’t common sense prevail sooner with those to bubbles? Is it because there is a demand to reinvest all of this new found 401k/retirement money that is managed by morons?

  2. diversify
    diversify on August 15, 2009 at 12:04 pm

    Increasing number of analysts and prominent gurus are becomming bullish with Economy. As a common person on street, I am confused of what to do. We know the kind of problems that prompted melt down are big and can not be resolved easyly. Yet Market is reacting as if what issues…Still not sure what prompted the final sell off at the end of Feb and what prompted huge rally in early march,april,may,june & july. Investors who were waiting for a pullback never got the chance. For common investors It is pretty scary to invest knowing market has in general increased 50 to 60% up.Jim could you help us figuring out what to do at this juncture

  3. georic
    georic on August 14, 2009 at 12:50 pm

    I must say I’m really annoyed by what I consider as information manipulation. In France and Germany, it’s all about being out of the recession, whereas what happens is the GDP has stopped going down lower over the last quarter, staying therefore at a dismally low level. How trustworthy are the informations we get from officials, banks, whatever.
    You questionned, rightly, the quality of the Chinese statistics (same applies to India), wouldn’t you agree that all governments twist the figures?

  4. viwi
    viwi on August 14, 2009 at 12:40 pm

    Correction is coming … SSE Composite index is already off more than 10% from its August 4 high. S&P500 will follow.

  5. mp3106
    mp3106 on August 14, 2009 at 8:06 am

    Jim, I was wondering if you think the financial mess with Taylor Bean and Whitaker and Colonial Bank are going to affect the market or the mortage market?

  6. grindy2424
    grindy2424 on August 14, 2009 at 1:42 am

    Jim this is definitely a tough one about where to invest right now. There is so much psychology involved with the US consumer as well as the rest of the world. We might have the anticipation of recovery and as long as we see some signs of it we continue to move up.

    Your posts about money managers trying to find a way in is excellent as well. They have to go against what that believe some otherwise they will be losing a significant amount of clients. Definitely limits the pullback I think we could have. There will be a lot of hoping that the data continues to get better to justify the buying!

  7. DJBarber
    DJBarber on August 14, 2009 at 12:38 am

    Jim,
    I occasionally do a bit of research that is (I think) relative to some of the stocks that you talk about.
    For instance, I posted several things with links to Mine Web, and Bloomberg articles relating to Iron Ore and Commodities.
    For instance, today I found several articles that coincide with your “Asian stocks are looking expensive. Which could be good for U.S. shares” and your bit on “Fortescue”.

    I don’t know how relative what I find is to your research, or more importantly, how you feel about somebody posting links all over your blog.

    Is there a place where they are more appropriately posted, where you may also be aware of them, and so choose to include a synopsis, or reference to them, rather than having me post them into your blogs ?

    I am wondering if you have a “rules of the road” for posters that I should be following ?

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