GMO’s Catherine LeGraw on emerging markets, trade tensions

The recent rally to record highs in U.S. stocks may feel like reason to celebrate, although one investor suggests a better bet may be overseas.

GMO’s Catherine LeGraw believes which while U.S.-based stocks tend to be of a higher quality, investors can find far more affordable deals in emerging market equities.

“We have historically wide spreads across equity markets. You have a great opportunity to concentrate your investments inside the cheaper areas; I’d primarily highlight anywhere outside the U.S.,” Legraw said in a talk with CNBC Pro
. “Europe, Asia, Japan for the developed markets, as well as in particular, our favorite group of stocks, the emerging markets.”

“Avoid the U.S. which’s done the best as well as today which’s the most expensive.”

Legraw, whose investment strategies are based on seven- to 10-year time frames, conceded which while GMO’s types have warned investors away by expensive American stocks, U.S. equities have generally outperformed the rest of the globe within the past several months.

Both the S&P 500 as well as the Dow Jones Industrial Average hit completely new all-time highs Friday as a swell in technology stocks as well as moderating trade war fears ushered stocks higher.

favorite growth-heavy stocks such as chipmaker Advanced Micro Devices as well as e-commerce giant Amazon have soared past the traditional stock indexes with gains of 203 percent as well as 64 percent, respectively.

although the obsession with U.S. growth stocks leaves behind far better deals overseas, LeGraw said.

“Even if you think growth is usually going to be great inside the future, you have to pay a massive premium to invest in U.S. stocks today,” she said. “So we think you’re much better off buying emerging market stocks at a roughly 50 percent discount to the U.S. equity market as well as capturing a huge margin of safety.”

The December 2019 cost-to-earnings ratio of the iShares MSCI Emerging Markets exchange-traded fund on a forward-looking basis is usually 10.8 as of Sept. 21, the S&P 500’s ratio hovers at 16.5. The tech-heavy Nasdaq Composite’s December 2019 ratio sits at 21.2.

LeGraw is usually a member of GMO’s Asset Allocation team. Prior to joining GMO in 2013, she worked as a director at BlackRock. Previously, Ms. LeGraw was an analyst at Bear, Stearns & Co as well as she is usually a CFA charterholder.

As of March 2018, GMO had $71 billion in assets under management.

See here for the full CNBC PRO report as well as interview video.

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