Cheapest stock markets in the world

Sources: telegraph.co.uk, Datastream, Hargreaves Lansdown

How this was created

With US stock markets at all time highs, traders and investors are becoming nervous about the steepening valuation of US equities.

Everybody is talking about volatility and volume right now and both of these conditions suggest that a significant market correction could be near.

The CBOE Volatility Index (VIX) has long been an indicator of fear in the markets right now it continues to trade at some of the lowest levels in it’s history. In fact, the VIX is trading under 11, and has only been this low on a handful of occasions. And as Kerry Prazak points out, the stock market has pulled back significantly nearly every time the VIX drops this low.

But the VIX isn’t the only indicator that suggests a correction is imminent. The Shiller CAPE ratio is also significantly overvalued with a reading of 25.6, 57.6% above it’s median and the third highest in 100 years.

Furthermore, the total market cap to US GDP ratio (a favourite of Warren Buffett) is overvalued at 122%, suggesting future annual returns of just 1.3% on the US stock market.

Market cap vs gdp

Source: Gurufocus.com

With US stocks so expensive right now, the question remains: Where else can traders look for profits? Well there are places in the world that are still cheap.

5 Cheapest stock markets in the world

Russia

It may not be all that surprising that the Russian stock market is one of the cheapest in the world right now. Geopolitical turmoil and conflict in Crimea has seen investors flee equities and the Russian stock market now trades at a PE ratio of 5.30 with a price to book ratio of 0.71 (the lowest of the 34 developed nations analysed).

Despite the volatility, there are signs of peace and notable investors (Jim Rogers included) have expressed renewed optimism in the former Communist state.

Greece

Like Russia, it is no surprise to learn that the Greek stock market is cheap. It is in fact the cheapest of all 34 countries studied with a PE ratio of just 3.40 while the cyclically adjusted PE is 6.08. Contrarian investors with a strong stomach should be able to find some value there.

China

A better place for investors could well be China and with a PE ratio of 6.30, the Chinese market is the third cheapest of all 34 nations, behind only Russia and Greece.

Investors have bailed out of China in recent months as the economy slows down but could be due for a rebound. The Chinese central bank have plenty of tools available to combat the slowdown and that could lead to a good performance from Chinese shares.

Japan

The Japanese Nikkei gained almost 40% in 2013, but the stock market is still cheap when compared to other nations and is 60% below its 1990 all time high.

Japan suffers from an ageing population but the aggressive monetary policy put in place by the Bank of Japan is injecting renewed life into the economy and depreciating the value of the Japanese yen.

With a PE ratio of 13.90 and price to book ratio of 1.32, Japan is cheaper than most other developed markets.

Japanese Nikkei chart

Source: Yahoo Finance

Turkey

Turkey is another stock market that is cheap right now. The Turkish equity market has a PE ratio of 9.90 making it the fourth cheapest behind Greece, Russia and China.

Riots and violence has clearly put investors off the country and the Turkish Lira has also taken a beating.

However, Turkey’s current account deficit of -7.90% is dangerously high and suggests there could be further problems ahead.


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