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Summary Analysis of world equity indices can give an idea as to which equity markets provide good investment opportunities and which are best to avoid. Currently, investors should be very alert about investments, particularly on British, Brazilian, Canadian, Mexican and Russian stock exchanges. On the other hand, Chinese H-Shares, South Korean and Vietnamese equities have the capacity for a positive surprise. However, the indisputably best investment opportunity seems to lie in Japan as Abenomics is in full swing. As globalization and new technologies evolve, differences between individual countries are inevitably diminishing. Greater interconnectedness causes local risks to easily spread around the globe and short-term profit opportunities to be quickly seized. However, investors can still find long-term economic moats if they fully understand the underlying timeless principles of equity investing. First of all, they have to realize that the progress of the fundamental value of an investment is strongly correlated with earnings of that investment in the long run. Therefore, investors should focus their attention in this direction and not get fooled by any incidental events. Second, it absolutely crucial to know by heart Warren Buffett’s famous mantra: ,,Price is what you pay, value is what you get.” And third, be aware that proper diversification is a must, otherwise you may face a nervous breakdown in this rapidly changing world. Recently, in light of growing economic and geopolitical tensions, I have been thinking about the geographical allocation of my portfolio. In order to complement broadly discussed issues in financial media, I decided to identify which markets currently offer generally good investment opportunities based on valuation multiples, return on equity and earnings growth analysis of major world equity indices. Price-To-Earnings Looking at the comparison of current PE ratios below, we quickly spot Russian MICEX and several Asian indices among the lower multiples on the left side of the chart and Mexican Mexbol, Brazilian Bovespa and British FTSE on the right side of the chart with higher multiples. Even though PE ratio is widely used valuation metric, it has limitations and hence should be taken with caution. Current Enterprise Value To Trailing Twelve Months EBITDA Especially in the cases of Russia and China, PE indicators may be very misleading since we have heard that the recent Chinese stock frenzy was largely fueled by borrowed money. As a better valuation indicator can then serve EV/EBITDA ratio as it adequately accounts for the level of leverage. Compared to the previous chart, we can clearly observe the shift of Chinese A-Shares index Shanghai Composite to the expensive zone of the chart. Nevertheless, notice that Chinese H-Shares index Hang Seng remained on the relatively cheap side of the chart. Price-To-Book P/B is another popular financial ratio used to gauge market valuation of a stock. However, some assets may be not worth buying even when they trade below their book value. Although Russian equities are boasting with extremely low valuation multiples, they are cheap for good reason. The stiffness of the local business environment and the risk of losing the whole investment due to eventual nationalization of assets are simply too high. Return On Common Equity Moreover, Russian equities together with Brazilian, Canadian and British have the lowest Return on Equity in the given sample. ROE is an important profitability measure and a critical weapon in many value investors’ arsenals. In 1972, Buffett implied that he desires a rate of return on equity of at least 14%. Nine years later, he identified the average rate of return on equity of American companies at 11%. To the last day of October this year, ROE of the S&P 500 totaled 12.5%. 3 Years Earnings CAGR Because of the strong relationship between earnings and market prices in the long-term, one should also assess earnings growth. The following chart captures earnings growth (in %) for the most recent 3 continuous years, ending on the last trading day of October 2015. As you can see, profitability of Russian, Brazilian, British, Canadian and Mexican companies suffered significant losses in recent years, while several Asian indices led the earnings growth. Undoubtedly the most notable rise in earnings was recorded in Japan as the yen heavily depreciated during the given period. Japanese economic miracle 2.0? The fact that the Japanese economy is slowly heating up after long period of deflationary pressures has already been noticed by several renowned economic journals . In order to spur the yet fragile economic recovery, Japan’s Prime Minister Shinzo Abe last week rolled out additional fiscal stimulus. Whether we will witness the second ‘Japanese economic miracle’ can be hardly predicted, but for now, it is quite obvious that Abenomics has considerably changed the course of the third largest world economy. Furthermore, most of Abe’s reforms greatly emphasize the importance of corporate efficiency with a particular focus on ROE. This could help Japanese shares move even higher in the upcoming years. The Bottom Line Probably the best way how to invest in a country’s equity market is through some ETF. The most liquid ETFs with exposure to Japan’s equity market are the iShares MSCI Japan ETF (NYSEARCA: EWJ ) and Japan Hedged Equity Fund (NYSEARCA: DXJ ). Based on the comparison charts above, Chinese H-Shares seem to be surprisingly a good value play even despite the concerns about a slowdown of the Chinese economy. Favorite ETFs consisting of securities listed on the Hong Kong stock exchange include the iShares China Large-Cap ETF (NYSEARCA: FXI ), iShares MSCI China Index Fund (NYSEARCA: MCHI ), SPDR S&P China ETF (NYSEARCA: GXC ) and Guggenheim China Small Cap ETF (NYSEARCA: HAO ). South Korean equities also do not look bad and could be substantially boosted by potential monetary response of local central bank as I wrote about earlier this year . ETFs that could eventually thrive are the iShares MSCI South Korea Capped ETF (NYSEARCA: EWY ), Deutsche X-trackers MSCI South Korea Hedged Equity ETF (NYSEARCA: DBKO ) and the WisdomTree Korea Hedged Equity ETF (NASDAQ: DXKW ). However, not all country ETFs suitably track broad equity indices’ fundamentals. For example, the only ETF providing sole exposure to the Vietnamese equity market – Market Vectors Vietnam ETF (NYSEARCA: VNM ) – mismatches the returns of the national stock market index Vietnam Ho Chi Minh Stock Index (VN Index) by a great deal. Hence, thorough analysis of specific investment instrument should never be neglected as it can easily hamper your original investment objective. With respect to high valuations and weak profitability, the most popular ETFs that should be shorted or avoided by long-only investors are the iShares MSCI United Kingdom ETF (NYSEARCA: EWU ), iShares MSCI Canada ETF (NYSEARCA: EWC ), iShares MSCI Mexico Capped ETF (NYSEARCA: EWW ), Market Vectors Russia ETF (NYSEARCA: RSX ) and iShares MSCI Brazil Capped ETF (NYSEARCA: EWZ ). Note: All presented figures in the charts were exported from Bloomberg Terminal as of 10/30/2015.