All around the world, investors look for low-risk stocks with high returns. Unfortunately, the nature of investment means that low-risk stocks yield little earnings and vice versa. Generally, sharp investors avoid expensive markets that cost them a fortune. Instead, thy choose to invest in the cheapest stock markets.
Recently, markets around the world have had to grapple with different events that define the investment climate. That includes rates hikes, shock election outcomes, and technological disruptions among others. However, investors are upbeat about 2017. This article analyses some of the markets where you can find the cheapest stocks in the globally.
The Cheapest Stock Markets You Need to Know
Equity investment has managed to beat other investments such as forex, bonds and real estate over the years. There is a huge benefit in getting hold of a cheap stock with considerable return potential. In this regard, several aspects help us know whether a stock market is a bargain.
These include the price-to-earnings (P/E) ratio. This ratio compares the market value of a stock with the per share earnings to investors. It leads to a conclusion of either a correctly valued, overvalued or undervalued stock. Overvalued stocks with high P/E ratios are generally expensive.
Additionally, the CAPE (cyclically adjusted price-to-earnings) ratio takes care of limitations of the simple P/E ratio. As a research paper by Star Capital indicates, the CAPE is more effective in identifying the cheapest stock markets. It adjusts the P/E ratio for inflation over a decade. Applying this analysis, the following constitute some of the bargain equity markets around the globe:
1. Russian Stock Market
According to Star Capital, the Russian Stock market had a CAPE of 5.3 and a P/E ratio of 7.1 by the end of March 2017. This gave it a weight of 1% compared to that of the United States. The latter stood at 42.5% with a CAPE of 27.5 and a P/E ratio of 22.7. This makes the US stocks more expensive as compared to Russia’s stocks.
The Moscow Stock Exchange (MOEX) is the notable bourse in Russia. Some crucial indices include the Russia MICEX Stock Market Index. It reached an all-time high of 2,285.43 at the start of 2017 against the lowest record of just 18.53 in October 1998. The record growth was partially due to the prospect of a friendly political regime in the United States. Also to the expected lifting of economic sanctions. However, those sanctions remain in place. They make Russian stocks a dicey bet, but still among the cheapest stock markets globally.
Notably, the Russian stock market is loaded with unique risks. Most publicly traded companies include cheaply priced government controlled banks and energy companies. Therefore, they lean heavily on government benevolence, economic performance, interest rates, and international oil prices.
2. South Korean Stock Market
With a CAPE of 13.7 and a P/E ratio of 12.6, the South Korean stock market lists among the cheapest stock markets. The Korea Stock Exchange KOSPI Index, the main market indicator, is on an upward trajectory. It stands at around 2,342 points by May 2017 compared to around 1,960 points in May 2016. This is remarkable for a country in the middle of an Asian conflict with respect to its northern neighbor. It also has its previous presidential scandal and a resultant political upheaval. The latter, fortunately, ended with a successful election in May 2017.
Investors with an interest in Asian stocks keenly watch the South Korean stock market. It is relatively stable when compared to the Russian stock market. The Korea Exchange (KRX) is the sole stock exchange operator in the country. A number of formidable international companies trade in the bourse. That includes Samsung with attractive stocks to both international and local investors.
3. Greece Stock Market
Greece has had its fair share of the economic crisis triggered by the debt crisis of 2011. The economy has struggled to stay afloat. It received help from international intervention bodies such as the IMF and the EU. However, this has come at a price for citizens and investors alike.
For a country surviving on austerity, interest rates are generally high. This has an effect of bringing down the price of stocks. As veteran investors will tell you, interest rate hikes send stock prices plummeting. The Greece stock market is exceptional. It has suffered a crush as recently as in 2015.
The benchmark indices in Greece especially for the Athens Stock Exchange (ASE) indicate time to buy stocks as the economy trudges up. In fact, Star Capital assigned Greece stock market a CAPE of minus 23.9 by end of March 2017. We can compare to 13.7, which was back in 2015. Also, we can attribute the erosion to huge losses in the Greece financial sector. However, this seemingly risky market need not scare away any investor. It is among the cheapest stock markets in Europe.
Perhaps the most notable Chinese stock operators are Shanghai and Shenzhen Stock Exchanges. As recent as in 2016, Chinese stocks have been on a losing streak. It was due to slowing economic growth in China, a situation which sends jitters down the spines of investors. This is because poor economic growth numbers predict a weakening economy, which shrinks investments.
The overall Chinese stock market CAPE stood at 14.4 against a P/E ratio of 7.6 by end of March 2017. Comparing this to Denmark’s CAPE of 34.1 and P/E ratio of 22.8, Chinese stocks provide a better bargain. However, they are riskier than those in Denmark’s equities are.
It is crucial to note that Chinese stocks hit a rocky start in 2016, characterized by imposition of circuit breakers. These are deliberate measures to suspend trading when stocks fall or rise beyond a certain percentage. They mean to avert investor panic. Nevertheless, these circuit breakers result to the opposite effect. They fan overreactions and thus become unhealthy for stock markets. This is another reason Chinese equities comprise some of the cheapest stock markets in the world today.
5. The Italian Stock Market
Star Capital gives Italian equities a CAPE of 13.9, a P/E ratio of 24.8 and a weighted average of 1.1%. The value is similar to that of China. Belgium, which is one of the most expensive stock markets in the world, has a weighted average of 0.7% with a CAPE of 22.7 and a P/E ratio of a whopping 37.8. Comparing the two, Italian stocks are a better bargain for the risk-friendly investor.
The Borsa Italiana based in Milan is the country’s main stock exchange. The main index is the FTSE/MIB. It clocked a maximum of 50108.56 back in the year 2000 only to go to an all-time low of 12362.50 in 2012 from where it has continued a steady rise. The country has also faced a banking crisis as recently as in 2016. It is now on recovery, perhaps one more reason behind its cheap stocks.
The equity markets in Russia, South Korea, Greece, China, and Italy form some of the cheapest stock markets available in the world in 2017. As observed, countries coming out of economic crises slow growth and political turmoil as well as those in which governments control wide aspects of the economy tend to have more investment risks that explain the cheap stocks. Kindly share your experience, thoughts, and questions, as we would love to hear from you.