Is there more value to be found in American markets or in emerging markets?

The U.S. stock market is positioned for larger potential swings, which is of concern to many due to the virus situation. As of Friday, the Dow Jones Industrial Average (DJIA) had reached over 24100, recovering most of the decline caused by the Corona situation.

Investors traditionally consider measures such as P/E (price-to-earnings ratios) or Discounted Cash Flows (DCF) before investing in a company, but it seems they have been ignored recently. FANG companies (Facebook, Amazon, Netflix, Google) are currently trading at multiples of their profits. Whether blindly or not, investors believe in the long-term opportunities they could create, as we saw during the last crisis, when these companies recovered considerably.

Are we witnessing another tech bubble?

The last time the Russell index's growth-to-value ratio reached such levels was during the 2000 tech bubble. Also known as the internet bubble of the late 90s, it led to a major correction of the early web companies, leading to the bankruptcy or near-bankruptcy of many of them. For example, the almighty Amazon lost about 90% of its value during this bubble.

Current conditions, at least judging by the growth-to-value ratio, show that this ratio is now only 1.3% from the highest level reached at the height of the tech bubble.

Armed with this info, traders may want to check global stock market valuations. After all, if U.S. stocks become too expensive, traders may see opportunities elsewhere where valuations are more competitive.

It turns out that, based on price-to-book value and other measures, only 8 out of 41 stock markets are above historical averages. Moreover, compared to the great financial crisis of 2008, emerging markets are trading at their lowest in 11 years, while the U.S. is more expensive than 13 years ago.

Since the last crisis, U.S. markets have experienced their largest rally in history. This means that overall valuations are significantly higher than before. However, the USD has also gained strength against other currencies, particularly those of emerging markets.

This means that dollar holders are now in the best position to potentially invest in emerging markets due to the weakness of their currencies. However, traders still seem to want to allocate these resources to U.S. equities.