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Pricey U.S. Stocks Accelerate Move to Europe, Japan

Emerging Markets: Still a Risky Play

Emerging markets seem attractively-valued compared to U.S. equities but quality isn't uniform. The MSCI Emerging Markets index has lost 2% in 2013 while the benchmark trades at 12.2 times earnings. Beesley says he remains cautious about jumping into China, India, Indonesia, Turkey and Brazil.

"Many of these economies will see GDP grow less fast and also face some inflation challenges," he said. Beesley adds that countries with large current account deficits that have been by U.S. dollars are vulnerable to sudden hikes in U.S. interest rate. "As dollars are repatriated, either interest rates in their economies will have to rise or their currencies will need to appreciate - neither of which is supportive for growth," Beesley said.

Jansen is similarly cautious, preferring developed markets in the short term. "Growth from Europe and Japan will be more visible and that will feed back to emerging markets," he said. Within developed markets, he points to opportunity in China, Turkey (when looking beyond political instability) and Brazil for its relatively diversified stock market.

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Another approach may be picking markets that are essentially developed, but classed as 'emerging' on technicalities. For example, Mann likes Korea, which is classed as emerging due to its difficult access for global investors (such as corporate documents not being translated to English). Yet he notes the country boasts big global brands such as Samsung and Hyundai. Mann also likes Peru, which he views as having undergone significant economic reforms, and a country that is comparatively easy to conduct business in.

Home Bets Persist

Scott Schweighauser of Aurora Investment Management still views U.S. equities as the most attractive option. He points to a benign interest rate backdrop, solid corporate profitability, and opportunities on both the long and short side for investors. "The U.S. is as compelling an environment as you could hope for," says the president and portfolio manager, who helps oversee $9 billion.

But all things considered, the message is clear: U.S. stock valuations have grown and profit margins are close to peaking. If stronger company earnings do not soon justify this year's rally, further gains may be hampered. Instead, investors willing to take a punt abroad face nascent economic recoveries in developed markets such as Japan and Europe.

Ongoing stimulus support in those economies offers further support - just as it has fuelled gains in the S&P 500. Longer term, emerging markets in China, Turkey, Peru and Brazil may also offer gains: otherwise put, now is an opportune time to travel with equity investment.

Written by Jane Searle in New York

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