We published a bullish view on undervalued global stocks today on Seeking Alpha. Below are some excerpts:
- The recent panic selling has created some incredible opportunities to buy cheap equity indices outside of the U.S. which should benefit regardless of how serious the coronavirus pandemic becomes.
- The average price/book value of indices including Hong Kong, Singapore, South Korea, Turkey, Russia, Poland, Czech Republic, Mexico, Chile, UK, and Greece, are trading at all-time lows.
- The worse COVID-19 becomes in the near term, the greater the prospect for long-term equity returns as governments and central banks respond with inflationary fiscal and monetary stimulus.
“From a cash flow perspective in order for this basket of indices to underperform US Treasures over the next decade we would need to see dividends decline in excess of 3.6% per year in nominal terms despite the almost certainly of positive inflation. Even if we assume the long-term U.S. inflation rate comes in at the level implied by 10-year inflation breakevens of 1.5%, this would require a halving of dividend payments over the next decade. In other words, these markets are priced for a depression.”
“The more acute the crisis becomes in the near term, the greater the probability that governments and central banks overreact with excessive money printing and deficit spending. We see a very high chance that the current economic downturn and asset market weakness could mark the final disinflationary prior to what we see as an inevitable long-term risk in inflation. If this is the case, now could be a great time to pick up cheap international stocks to benefit from rising nominal long-term cashflows.”
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