US stocks expensive but Japan “too cheap to ignore”

With US stocks expensive, John Hussman thinks that investors should keep their powder dry.

“Based on current valuation extremes, the outlook for prospective 12-year S&P 500 total returns remains dismal, likely averaging less than 1% annually by our estimates,” he wrote in his latest article. “Dry powder has considerable value here, not because of the return it currently generates, but because of the opportunity it may afford to establish constructive and even aggressive market exposure over the completion of this cycle, at higher prospective returns than are currently available.”

Alternatively, investors may want to consider the Japanese stock market. According to a Bloomberg report, Japanese stocks have become “too cheap to ignore”.

“It’s a buying opportunity,” Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management, was quoted as saying.

Braver investors could consider emerging stock markets. A New York Times article noted that emerging market stocks have risen almost 17 percent in the 12 months through March.

“What has been driving emerging market returns in the last year was the recovery in commodity prices, which led to a number of commodity producers’ doing well,” said Arjun Divecha, head of the emerging markets equity team at GMO.