Which overseas markets are particularly attractive?

Hi, this is Gabriela Santos, Chief market strategist for the Americas at JPMorgan Asset Management. Welcome to On the Minds of Investors. Today's topic is exactly which overseas markets are particularly attractive. After a strong five months, equity markets are experiencing a correction. So far in April, as the most talked about and invested companies, the famous Magnificent Seven proved to not be so invincible.

After all, investors are considering what other opportunities exist, and international equities deserve a second look, especially those in Asia, as attractive macro and microeconomic developments are unfolding. With that said, the region encompasses a wide multitude of very different economies and markets, with at times very different market dynamics. Corporate governance changes favor Japan, while the combination of favorable economic and company fundamentals favor India within the EM space.

Investors should consider trimming decade long international equity underweight, and Asia is the key place to look for opportunities. As previously written, strong performance has recently come from companies listed overseas, unlike headlines might suggest, and in particular some markets in Asia are going through attractive top and bottom up changes. The region itself is home to five of the ten largest equity markets in the world, which include China's two mainland exchanges, as well as those in Japan, India and Hong Kong.

But these markets have different characteristics in terms of liquidity valuations, earnings, quality and just overall trends. One way to think about the nuances in equity markets is to consider the return on equity or how efficient profitability is with the price to book ratio or how much investors are willing to pay up for a stock. And as we've shown in our chart, there's a wide range in emerging markets, including high quality and hence traditionally expensive markets like India versus lower quality and traditionally cheap markets like China and South Korea. So investors should really evaluate these markets very differently for India. The excitement is justified due to a combination of favorable demographics, economic reforms and supply chain realignment. And oftentimes investor pushback to the story is that Indian equities are expensive. Given its price to book of over four times almost as high as the U.S. critically, though, its return on equity is almost as high as the one in the U.S. and consistently so over the past decade. So Indian equities do deserve to trade at a premium to other M and global markets, and investors may miss out if they wait for India to cheapen significantly. In fact, this is the attractiveness of investing in Indian equities. A good macro and micro story. These differences also exist between developed markets, with the US market having quality companies and commanding elevated valuations, US versus Japanese markets, which have traditionally had the opposite characteristics.

But with Japan, the direction of travel is key. Recent corporate governance reforms are instilling newfound momentum and pressure on Japanese companies to improve shareholder value. As a result, Japan's return on equity and price to book are improving and are presenting investors with a perhaps once in a generation rerating opportunity and a once forgotten market.