Look to Singapore for attractively valued stocks

SOMEONE asked me the other day why investors continue to pile into the US stock market even though it is already quite highly priced. What’s more, much cheaper alternatives are available elsewhere, such as in Asia.

Currently, the US stock market, as represented by the Dow Jones Industrial Average, sports a dividend yield of 1.9 per cent, which is quite measly. It is also valued at 24 times earnings, which is quite high. In other words, if US companies pay out all their profits as dividends, the hypothetical earnings yield would be 4.1 per cent.

That is not especially attractive. Currently, the risk-free rate as measured by US 10-year Treasuries is 3.6 per cent. So the difference between the earnings yield and the risk-free rate is slim. That difference could narrow further. After all, the US economy is showing signs of slowing, which could have an adverse impact on corporate earnings. Consequently, the earnings yield could creep even lower, if share prices stay elevated.