The Global value portfolio 2020

As the stock markets seem to be set for ending the decade at or near All-Time-highs, let’s see where we can find the greatest value going into the next decade. Therefore we look at the CAPE ratio (basically a P/E ratio, smoothed out over a 10 year period) of global stock markets and aim to construct a simple value portfolio covering the cheapest stock markets with ETFs.

Comparing Global CAPE ratios

The CAPE ratio is commonly used for comparing the valuation of international stock markets and therefore we will use it in this short analysis. We want to set up a global portfolio investing in the cheapest stock markets worldwide. These markets are not all depressed, but valuations are considerably lower than in the US, where the CAPE ratio is currently around 30, which is very high historically. Meb Faber has a great podcast on using the CAPE ratio as a timing system, including great resources for Global Stock Valuations.

By investing in cheaper countries around the world, we may be able to reduce the downside risk of our investments considerably. Furthermore, the concept of mean reversion would also favor such a strategy, as valuations can be expected to converge somewhat over time.

So here are the cheapest stock markets around the world and their CAPE-ratios:

CountryCAPE Oct 2019% of World Market Caprel. share of Market Cap in %
Czech Republic9.80,05%**0,2%
South Korea12.11,867%7,46%
United Arab Emirates13.90,31%*1,24%
Hong Kong14.9.5,04%20,15%
United Kingdom15.84,5%*17,99%

CAPE data:
Market Cap data:
* Source: Seeking Alpha
** estimate based on 2008 data from

Building the portfolio

In the table above we have listed countries with a CAPE ratio below 16.0 in order to find the cheapest markets in world. The resulting portfolio covers about 25 percent of the current Global Market Capitalization according to data from, therefore 75% of global stock markets are currently on CAPE ratios above 16.0 and not considered for our purpose. The portfolio mainly consists of Emerging Market countries, which represents an interesting diversification to any portfolio currently focusing on the US or other, more expensive markets.

The relative Market Cap percentages within the portfolio show that China, Hong Kong, United Kingdom, South Korea, Singapore, Spain and Russia cover about 80 percent of the portfolio.

From theory to practice

We could use country-specific ETFs to cover the markets listed in the table above and at least for the major countries this would be feasible in a relatively efficient way. However, not all of the countries can be covered by low-cost investments in specific ETFs, so for simplification it makes sense to use regional ETFs. Let’s take a look at some regions and their combined CAPE ratios (data source:

Emerging Europe9.7
Emerging Markets World15.1

The Simple CAPE investment strategy

Invest equal-weighted in an Emerging Europe ETF, a BRICs ETF and an Emerging Markets World ETF.

3 options below:

ishares MSCI Eastern Europe Capped UCITS ETF
Vanguard FTSE Emerging Markets UCITS ETF
ishares BRIC 50 UCITS ETF

This strategy makes sense from a valuation-perspective long-term but may come with considerable risk and volatility in the short- and medium term. However, especially as an addition to existing investments in more expensive regions of the world like the US, it represents an interesting diversification.

Update February 24, 2020: Thanks to for pointing out that the simple CAPE Strategy above is very concentrated on China and Russia. This might be ok considering the relatively low CAPE ratios of these countries but there is certainly the argument for more diversification. Thus you could for example add a UK-focused ETF and reduce the weight of the BRICs.

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