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Nov. 23, 2019, 9:34 a.m. EST

U.S. stocks look fully priced — where to put your money now may surprise you

These stocks and ETFs expose you to world markets that are growing faster than the U.S

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By Michael Brush, MarketWatch


IStockphoto

Investors have become much more bullish about U.S. stocks in just the past couple of weeks, according to the dozen indicators I track. That’s a negative because it suggests any good news is already priced in.

Accordingly, the odds improve if you send your investment dollars abroad now — for four reasons:

1. The bullish story for U.S. stocks is well known: “Everyone is hiding out in the U.S.,” says Bear Traps Report’s Larry McDonald. “Foreign private holdings of U.S. stocks recently hit a record high of $7.7 trillion. This is the mother of all crowded trades.”

2. Foreign stocks are cheaper: The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.0073%  trades at a forward price earnings ratio of around 17.5, compared to 12-13 for European and emerging market stocks, points out Ed Yardeni of Yardeni Research. This says your risk-reward balance is better abroad. U.S. stocks typically trade at a premium, but the current gap is among the widest since 2001.

3. Foreign governments are dumping money on their economies: Central banks around the world have been lowering interest rates. The European Central Bank is back in quantitative easing mode. In what would be an unusual move, Germany may even turn to fiscal stimulus. Even U.S. Fed rate-cutting helps abroad, since this often benefits emerging market economies, Yardeni points out. All of this stimulus may take a few months to boost the global economy, he adds. But the time to buy is now — ahead of policy moves about to have an impact.

4. The U.S. dollar will likely weaken over the next year: President Donald Trump wants a weaker dollar /zigman2/quotes/210598269/delayed DXY -0.23%  because this would likely increase foreign demand for U.S. manufactured goods from key 2020 election states including Pennsylvania, Michigan, Wisconsin and Ohio, says Leuthold strategist Jim Paulsen. As confidence in foreign growth improves, that will draw money out of the U.S. and weaken the dollar. When the dollar weakens, commodity prices rise. This helps emerging market economies, which often have a big commodity component. Since 1970, every major phase of dollar weakness has seen significant outperformance by international stocks, Paulsen says.

Read: The big Trump trade war is with Europe

“We continue to believe non-US equities outperform U.S.-growth equities substantially over the next 12 months,” says McDonald. “The risk-reward in being long U.S. equities at today’s levels is atrocious. We see far more attractive opportunities around the world.”

Your ticket out

Let these stocks and exchange traded fund (ETF) favorites from money managers who specialize in foreign investing be your guide: 

McDonald favors ETFs, especially those offering exposure to emerging markets, which he describes as a “screaming buy.” Favorite ETFs include: iShares MSCI Brazil Index /zigman2/quotes/208893627/composite EWZ -0.24% ; iShares MSCI South Korea Index Fund /zigman2/quotes/204869824/composite EWY +0.25%   ; iShares MSCI Mexico /zigman2/quotes/203022585/composite EWW +1.33%  ; iShares MSCI Emerging Markets Index /zigman2/quotes/201454250/composite EEM -0.05%  ; iShares MSCI Frontier 100 /zigman2/quotes/203361478/composite FM -0.56%   , and KraneShares CSI China Internet /zigman2/quotes/205873167/composite KWEB -0.73%  .

Also consider VanEck Vectors Vietnam ETF /zigman2/quotes/205747944/composite VNM -0.56%   as a play on the migration of supply chains to Vietnam from China.

For Europe, McDonald singles out these ETFs: iShares MSCI Europe Financials /zigman2/quotes/208947805/composite EUFN +1.41%  ; iShares MSCI Germany /zigman2/quotes/204789209/composite EWG +0.27% ,  and iShares MSCI United Kingdom /zigman2/quotes/203635666/composite EWU +2.71%  . 

In addition, here are five stocks from fund managers who specialize in investing abroad: 

/zigman2/quotes/210599714/realtime
US : S&P US
3,168.80
+0.23 +0.0073%
Volume: 1.96B
Dec. 13, 2019 5:14p
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/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
97.18
-0.22 -0.23%
Volume: 0.00
Dec. 13, 2019 5:30p
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/zigman2/quotes/208893627/composite
US : U.S.: NYSE Arca
$ 45.69
-0.11 -0.24%
Volume: 31.51M
Dec. 13, 2019 8:00p
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/zigman2/quotes/204869824/composite
US : U.S.: NYSE Arca
$ 61.18
+0.15 +0.25%
Volume: 4.89M
Dec. 13, 2019 8:00p
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/zigman2/quotes/203022585/composite
US : U.S.: NYSE Arca
$ 45.75
+0.60 +1.33%
Volume: 3.74M
Dec. 13, 2019 8:00p
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/zigman2/quotes/201454250/composite
US : U.S.: NYSE Arca
$ 44.42
-0.02 -0.05%
Volume: 160.53M
Dec. 13, 2019 8:00p
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/zigman2/quotes/203361478/composite
US : U.S.: NYSE Arca
$ 29.98
-0.17 -0.56%
Volume: 143,889
Dec. 13, 2019 8:00p
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/zigman2/quotes/205873167/composite
US : U.S.: NYSE Arca
$ 47.28
-0.35 -0.73%
Volume: 1.87M
Dec. 13, 2019 8:00p
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/zigman2/quotes/205747944/composite
US : U.S.: Cboe BZX
$ 16.09
-0.09 -0.56%
Volume: 263,863
Dec. 13, 2019 4:10p
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/zigman2/quotes/208947805/composite
US : U.S.: Nasdaq
$ 19.44
+0.27 +1.41%
Volume: 2.48M
Dec. 13, 2019 4:00p
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/zigman2/quotes/204789209/composite
US : U.S.: NYSE Arca
$ 29.41
+0.08 +0.27%
Volume: 3.93M
Dec. 13, 2019 8:00p
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/zigman2/quotes/203635666/composite
US : U.S.: NYSE Arca
$ 34.10
+0.90 +2.71%
Volume: 6.70M
Dec. 13, 2019 8:00p
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