Stock markets around the world have rallied this year, and investors are asking whether equities are expensive. Comparing valuations to growth potential helps shed light on the risks and opportunities in equities.

US stocks are relatively expensive compared to non-US developed stocks and emerging-market (EM) equities, based on price/earnings ratios. Comparing P/Es to earnings growth (the PEG ratio) shows that EM equities are particularly attractive versus their own history and developed-world stocks.

Investors can still find opportunities around the world today. But no matter where you choose to invest, the complex valuation landscape warrants a diligent focus on companies with clear sources of revenue gains and solid earnings growth, as well as close scrutiny on potential risks to cash flows.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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