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The 20 top contenders in the World Cup of investing Add to ...

What are we looking for?

In the spirit of the World Cup, we at Lorne Steinberg Wealth Management decided to look around the world for the most attractive countries in which to invest. Using S&P’s Capital IQ, we endeavoured to create a “scouting report” by looking for significant variances in the valuation metrics of different countries.

If an investor finds that a certain market trades at a substantial discount to its peers, she may decide to invest in that market through an exchange-traded fund (ETF) or an equity strategy fund specific to one country. Other investors may decide to use it as a starting point to dig a little deeper and look into which companies within that particular market trade at a discount.

The screen

Whereas the World Cup includes nations from both the developed and the developing world, we limited our screen to developed countries. This is simply because developing countries tend to bring along a whole new set of risk factors with them, which we did not want to incorporate in our screen.

Aside from the traditional valuation metrics, such as price-to-earnings and price-to-book value, we also included the estimated one-year earnings per share (EPS) growth. The latter can be an important metric, as two markets may trade at similar multiples, but one may be far more attractive because of a much better outlook for earnings.

Price is always the driving factor. Said differently, Lionel Messi is a much more attractive player to have on a team than Cristiano Ronaldo, if he were to command a salary that was far less costly.

What we found

The results can be seen in the accompanying table. One observation is that while the Canadian market trades at a slight discount to its U.S. counterpart, the earnings growth of Canadian companies is also higher. This suggests that Canadian equities may be more attractive at this time. Also, among the larger markets, Japan looks attractive on several measures and a cheap hunting ground for value (which is why we have a good portion of our portfolio invested there).

Investors should be aware of several risk factors. The various countries in our screen all use different currencies (notwithstanding all the countries that belong to the euro zone). Therefore, a comparison of valuation metrics across different markets does not necessarily take into account different interest rates and different inflation rates in each market. Other macroeconomic factors may also account for differences in valuation. This includes budget deficits and balance of payments issues (for example, current account deficits).

As always, investors are strongly advised to do their own research before acting on any results from screens.

Samuel Oubadia is a senior analyst and Brian Pinchuk is a portfolio manager with Lorne Steinberg Wealth Management.

Countries ranked by price-to-book value

Book Value
LTM P/ENTM P/EEst. Annual
EPS Growth
- 1-yr %
Total Debt/
Equity %
Greece 0.7 16.0 14.9 7.6 90.8
Japan 0.9 13.1 14.3 7.5 36.8
Hong Kong 0.9 11.2 12.2 13.5 31.7
Singapore 1.0 13.7 13.9 10.6 36.9
South Korea 1.1 14.6 11.7 31.0 48.6
Australia 1.1 15.9 14.0 6.4 26.6
Norway 1.2 10.8 10.0 11.8 75.3
Denmark 1.2 17.2 16.8 23.8 44.9
Canada 1.3 16.5 17.0 14.4 31.3
Belgium 1.4 17.7 15.2 6.4 54.3
Italy 1.5 21.8 18.2 9.6 77.2
Spain 1.5 18.9 18.7 13.0 74.9
New Zealand 1.6 16.7 15.7 5.5 40.1
France 1.6 17.9 16.3 10.5 45.5
Germany 1.7 19.1 17.3 11.1 44.5
Switzerland 1.7 19.9 16.7 10.8 41.1
United States 1.8 18.7 18.3 10.3 51.9
United Kingdom 1.9 19.1 15.3 6.9 36.4
Netherlands 1.9 19.8 15.5 14.9 63.2
Sweden 2.8 20.0 15.3 26.0 40.9
All Groups (Average) 1.3 16.2 16.2 10.4 42.2
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