On top of that, as measured by the cyclically-adjusted price/earnings ratio (CAPE – which looks at earnings in the context of the long-term economic cycle), emerging markets are trading at less than half the valuation of US stocks. Based on that alone, says Zero Hedge, Gundlach reckons that emerging markets “could outperform US stocks by 100%”. But just remember – this is long term, so you’ll need to be patient.
Gundlach is not bullish on the short term by any means. Europe’s economic growth is “absolutely horrible”, while export-sensitive markets such as South Korea are being hit particularly hard. He also notes that 75% to 80% of global markets are in a “death cross” pattern, which is an unpromising (if imperfect) technical indicator. “It is quite possible there will be a global recession,” he says.
Even the US, where growth has remained far healthier than elsewhere, with few signs of slowing growth outside the housebuilding and buying sectors, is not immune. At the start of 2018, Gundlach forecast that the S&P 500 would end the year with a loss, a call that now looks likely to prove correct.