Attractive stock valuations in Europe and Japan once drew significant interest from investors seeking opportunities outside the U.S. equity market. However, the downside is that these low valuations are quickly disappearing.

Quantitative strategists at SOCIETE GENERALE noted that the proportion of stocks in Europe and Japan with price-to-earnings ratios below 8 times has dropped from 15% and 8% at the end of 2024 to roughly 3% and 2%, respectively.

They also pointed out that the number of high-valuation stocks in Japan continues to rise, with more than 13% of listed companies now trading at P/E ratios of 33 times or higher.

Data show that international markets have significantly outperformed over the past year, particularly so-called value stocks. The MSCI Europe Value Index and Japan’s Nikkei 225 both surged 26% last year, while the S&P 500 rose 16%.

"So where have all the cheap stocks gone?" wrote a team of strategists led by Andrew Lapthorne. "Since late 2024, the group of stocks with the lowest P/E ratios has gained around 60% on average. The answer is simple: they've gone up!"

The MSCI Europe Index now trades at a P/E ratio above 16 times, its highest level since 2021, while the Nikkei 225’s P/E ratio is close to 24 times.

Daniele Antonucci, Chief Investment Officer at Quintet Private Bank, commented, "Valuations in Europe and the U.K. are moderate but remain attractive compared to the U.S. market." He added that he has reduced exposure to U.S. equities and reallocated assets to other markets.