This week, the UK’s FTSE 100 index hit a series of record highs, prompting many investors to question whether British stock prices are currently overvalued and whether they should shift their focus to cheaper stocks. According to the most commonly used stock market valuation methods, stock prices in the London market indeed appear to be excessively high—this could further fuel market panic.

　　It is reported that the price-to-earnings ratio of stocks in the UK’s FTSE 100 index stands at around 34. Although this figure may contain some “error” due to the influence of data from a small number of loss-making sectors, it remains significantly higher than historical normal levels. When deciding whether to invest in company stocks or national stocks, the cyclically adjusted price-to-earnings ratio can provide investors with a highly useful entry point.

　　The cheapest bargain-hunting market

　　So, which were the cheapest markets selected based on the cyclically adjusted price-to-earnings ratio score in 2017?

　　1. Greece

　　According to data from Star Capital, Greece is currently the cheapest market, with a cyclically adjusted price-to-earnings ratio of -23.9. In December 2015, however, Greece’s cyclically adjusted P/E ratio stood at 13.7. Norbert Keimling, head of research at Star Capital, pointed out that the reason for Greece’s negative cyclically adjusted P/E ratio is the substantial losses suffered by the country’s finance ministry.

　　2. Russia

　　Boosted by rising oil prices and Donald Trump’s reassuring tone, the Russian market has sparked great excitement among many investors. Following Russia’s annexation of Crimea and its military intervention in Ukraine, plummeting oil prices and international sanctions had driven Russia’s market valuations to exceptionally low levels in recent years. These factors forced the Russian ruble to plunge, triggering a financial crisis.

　　In December 2015, the cyclically adjusted price-to-earnings ratio for the Russian market was only 4.6. Yet in 2016, as stock prices in the country rose by nearly 50%, the cyclically adjusted P/E ratio remained at just 5.9. Accordingly, Russian market funds delivered exceptionally strong performance in 2016: The Neptune Russia and Greater Russia funds each recovered 78% over the past year.

　　3. Brazil

　　Brazil also experienced a strong recovery in 2016, with improved economic data, a more optimistic political outlook, and rising commodity prices. However, the Brazilian market remains unstable. Among the ten cheapest markets, Brazil’s cyclically adjusted price-to-earnings ratio stands at 9.8, compared to 7.4 at the end of 2015. The most...

　　Expensive oversold market

　　Data from Star Capital show that countries such as Denmark, Ireland, the United States, and Japan have the highest cyclically adjusted price-to-earnings ratios globally. The U.S. market has consistently been very expensive, and every valuation metric underscores this fact.

　　Thomas Beckett, Chief Investment Officer at Psigma Investment Management, revealed that Japan is one of the best investment choices for the coming years. “The expected valuation suggests that the Japanese market could rebound by around 40% over the next five years. Moreover, given that investors currently hold relatively low positions in the Japanese market, I believe Japan will stage a remarkable comeback and become one of the top investment choices for investors.”

　　Overall, a low cyclically adjusted price-to-earnings ratio does not necessarily translate into strong market performance. Given the high transparency of the U.S. market and the rapid growth of tech companies—much like mushrooms after a spring rain—investors are highly attracted to investing in the U.S., making it one of the most expensive markets in the world. On the other hand, markets such as Russia are often labeled as cheap primarily because of “risk.”

　　Thomas Beckett, Chief Investment Officer at Psigma Investment Management, noted: “The low cyclically adjusted price-to-earnings ratios in many markets are largely driven by these risk factors, yet these markets also feature relatively high earnings expectations. The market outlook for countries such as Italy and Spain is particularly attractive to investors, with their cyclically adjusted price-to-earnings ratios standing at 11.7 and 12.7, respectively. This implies that if the cyclically adjusted price-to-earnings ratios of Italy and Spain were to return to their historical normal levels, their markets could rebound by 50% over the next five years—and over the next decade, investors’ wealth could more than double.”

　　Nevertheless, Beckett advises investors to proceed with caution when investing in the Italian and Spanish markets by purchasing the FTSE EPRA/NAREIT Index Fund.