Advisor Insights

International Investing

The State of International Stocks in 2023

March 29, 20231 Min Read
March 29, 2023
1 Min Read
state of international stocks

Michael E. Schroer, CFA



Stock markets around the globe have rallied since last September, with international markets generally outperforming U.S. stocks.

Some of this outperformance may be due to a contraction in the valuation discount of international markets versus U.S. markets, but the relative valuation of overseas markets remains very attractive.

Index Performance as of 2/28/2023
Sources: Renaissance Research, BlackRock, Bloomberg, S&P Dow Jones. Past performance is not indicative of future returns. Performance for periods of one year or less is not annualized. All total returns are shown in U.S. dollars.

The Cyclically Adjusted Price Earnings (CAPE®) ratio was popularized by economist Robert Shiller and is frequently used as a measure of market valuation. A comparison of the CAPE® ratio of the U.S. stock market with other major international markets shows that the U.S. market sells at a significant premium to the rest of the world.

Of course, the stock markets of each country or region tend to have their own unique fundamental characteristics and valuation ranges over time. Barclays Capital has calculated and published CAPE® ratios for various markets over the past 40 years, providing a good resource for comparing current valuations with historical averages. The graph below plots the absolute value of CAPE® for various markets (horizontal axis) versus where that market’s current CAPE® ranks in that market’s history (vertical axis). For example, Japan’s stock market has a CAPE® ratio of 20.1x, which ranks in the lowest fifth percentile of Japan’s stock market’s history since 1982.

Historic CAPE® Ratios
Source: Barclays Capital as of 1/31/2023. The CAPE® ratio is a variation of the traditional Price-to-Earnings (P/E) ratio that uses the ten-year average of inflation-adjusted earnings instead of single year earnings. Using a long-term average of earnings smooths out short-term volatility, theoretically making the CAPE® ratio better suited for detecting long-term over-valuation and under-valuation in a stock market. Percentile ranks are based on the average monthly CAPE ratio from 12/31/1981 to 1/31/2023.

As shown in the graph above, many overseas markets not only sell at a significantly lower CAPE® ratio than the U.S. market, but they also sell at more reasonable levels relative to their own long-term histories. To us, this suggests that the valuation differential between many international markets and the U.S. continues to present a favorable environment for many overseas stock markets.

Michael E. Schroer, CFA



Stock markets around the globe have rallied since last September, with international markets generally outperforming U.S. stocks.


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Past performance is not a guarantee of future results.

This Market Update reflects the thoughts of Renaissance as of February 28, 2023. This information has been provided by Renaissance Investment Management. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision, nor should it be considered a recommendation. The views and opinions expressed are those of the Chief Investment Officer at the time of publication and are subject to change. There is no guarantee that these views will come to pass. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.

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