“Some of the levels might be different, exchange rates for example, but from the point of view of asset valuations, bonds, credit and equities are all disturbing,” one panellist said.
“It’s hard to find quality investments with any value and you have to be nervous in these conditions as there’s potential for an adjustment to these high prices.”
The panellists said that while previously it had been possible to add value to portfolios by switching out of the most overvalued assets and into the less overvalued, “that option had now run its course”.
“Over the past few years we’ve traded off overvalued assets,” said one panellist.
“In our bond allocations, for example, we have preferred corporate credit to government bonds but now there has been a compression of credit spreads and people have to go further out along the yield curve, taking on more potential risk of capital loss in search of return.”
Other panellists agreed, stating there was “nowhere to hide in absolute value terms”.
The members of the panel said global investors had been reduced to “rolling through the asset classes” and “clutching at straws” as they tried to find pockets of relative value.
Members were also concerned what impact a fall in profits combined with rising interest rates would have on US equities.
One of the panellists said while equity evaluations are not ridiculous, they are based on trailing profit numbers.
“If there is a step change down in profits, then valuations wouldn’t look so good,” said the panellist.
“If you look at valuations predicated on relative value, then you have profits going down and interest rates going up, so the relative comparison valuation goes wrong, too.”
BetaShares chief economist David Bassanese also believes valuations sit at concerning levels.
“While US equity valuations may appear cheap with a forward earnings ratio of 15.6, only slightly above the long-term average since the late 1980s of 15.4, this average earnings ratio includes the internet bubble of the late 1990s,” said Mr Bassanese.
“Excluding this period, the forward [price to earnings] ratio averaged only 13.8, suggesting current valuation levels of almost 16 may be getting uncomfortably high.”
