If you’ve ever wondered whether international stocks offer more undervaluation opportunities than U.S. stocks, you’re not alone. Over the last decade, many investors have debated whether the U.S. stock market’s persistent outperformance means international markets are being overlooked—and thus might be more fertile ground for value hunters. In this article, I’ll break down practical research, share real-life investing experiences, and bring in expert opinions to help clarify if international stocks are truly more undervalued, why that might be, and how you can spot those opportunities (or avoid the traps).
Let me set the stage with a quick story. In late 2022, I was reviewing my portfolio performance and noticed something odd: my handful of emerging market ETFs, like iShares MSCI Emerging Markets (EEM), had lower PE ratios than my U.S. holdings—sometimes by half. It made me wonder: Is this just a broad trend, or am I missing something? I dug into the numbers using MSCI data and fact sheets from BlackRock and realized this wasn’t just anecdotal. As of Q1 2024, the S&P 500’s forward PE ratio hovers near 20x, while the MSCI All Country World Ex-U.S. index sits closer to 13-14x.
This valuation gap isn’t new. According to Morningstar, for much of the past decade, international stocks (especially in Europe and emerging markets) have traded at a 20-40% discount to U.S. stocks on both price-to-earnings and price-to-book metrics.
I used the following process to evaluate undervaluation potential (you can try this, too):
I’ll admit, the first time I did this, I mixed up price-to-earnings with price-to-book (rookie mistake), but after triple-checking, the valuation gap was real. Here’s a rough screenshot-like summary based on my notes:
S&P 500 (Q1 2024): Forward PE ~20x, Price/Book ~4x MSCI EAFE (Europe, Asia): Forward PE ~13x, Price/Book ~1.7x MSCI Emerging Markets: Forward PE ~12x, Price/Book ~1.5x
So, why are U.S. stocks consistently more expensive? Three big reasons keep coming up in both academic research and my own conversations with fund managers:
But does lower valuation always mean “undervalued”? Not necessarily. Sometimes, these stocks are cheap for a reason—think stagnant economies (Japan for decades), political instability, or structural headwinds (like Europe’s banking sector woes).
I recently watched a CNBC roundtable where Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs, mentioned, “The gap in valuations between U.S. and international equities is at historic highs, but investors should be mindful that this partly reflects real differences in earnings growth and return on equity.”
Similarly, the OECD’s Financial Market Trends report (2022) discusses how U.S. capital markets’ efficiency and liquidity drive premium pricing compared to less-developed markets.
Let’s take a quick detour into a real-world example. When I was consulting for a U.S.-based global wholesaler, we ran into a snag: a shipment of electronics from South Korea was held up because of differing “verified trade” certification standards. The U.S. Customs and Border Protection (CBP) required documentation that matched U.S. regulations, while Korea’s Ministry of Trade, Industry and Energy had its own set of standards. This regulatory friction not only delayed shipments but also introduced uncertainty around inventory valuations. The company’s stock price dipped temporarily, demonstrating how legal and procedural differences can impact perceived value.
| Country/Region | Standard Name | Legal Basis | Governing Authority |
|---|---|---|---|
| United States | Verified Trade Program (VTP) | Trade Facilitation and Trade Enforcement Act (TFTEA), 2015 | U.S. Customs and Border Protection (CBP) |
| European Union | Authorized Economic Operator (AEO) | Union Customs Code (EU Regulation No 952/2013) | European Commission, National Customs Authorities |
| South Korea | Certified Exporter Program | Foreign Trade Act | Ministry of Trade, Industry and Energy |
| Japan | Accredited Exporter Scheme | Customs Tariff Law | Japan Customs |
This table shows that procedural and legal differences can create risk and complexity in international trade, which in turn can suppress valuations for companies with heavy cross-border exposure.
After years of investing, here’s my honest view: international stocks do look more undervalued by traditional metrics, but you have to dig deeper. Sometimes, a low PE signals opportunity (like when Brazil’s market rebounded after political reforms), but sometimes it’s a warning sign (think of Russia in early 2022). I’ve made both good and bad calls—got burned with Turkish banks in 2018, but scored big with Taiwanese tech after 2020.
A friend who’s a portfolio manager at a global asset shop once told me over coffee, “Undervaluation is only a gift if the risk premium is mispriced. Otherwise, you’re just catching falling knives.” That stuck with me.
So, are international stocks more likely to be undervalued? Statistically, yes, based on classic valuation ratios and most major data providers. But whether that’s an opportunity or a value trap depends on your risk appetite, your ability to assess country and sector-specific risks, and your patience.
If you want to dig in:
Honestly, I still check myself every time I add to my international allocation—sometimes I get it wrong, but the learnings (and the occasional wins) are worth it. If you’re curious, try running these comparisons yourself and see what you find. And always, always check the headlines for regulatory or political changes—they matter more than most U.S.-based investors realize.
For further reading, I recommend:
Final thought: Don’t let valuation metrics alone drive your investment decisions—context is everything, especially in international markets.