Speaking to InvestorDaily, Perpetual head of investment market research Matt Sherwood said while there are several valuation issues in global markets, most of these issues appear to be in bond markets where yields remain close to or at multi-century lows in most major markets.
“In contrast, global share markets aren’t overvalued. When you actually have a look at markets, their price earnings ratios are around their 40-year averages,” said Mr Sherwood.
Looking at markets such as the US, Mr Sherwood said it is difficult to see how equity markets could undergo a sustained correction.
“In this region, the economy is gradually improving, earnings expectations aren’t challenging, interest rates are going to remain very low, valuations are at historic averages and listed companies are undertaking record amounts of buy-backs,” he said.
Mr Sherwood said once markets recover from the impact of Fed tightening, he believes they will “continue to grind higher”.
He said while it is the weakest recovery in the history in the US, “things are slowly getting better and the environment remains positive for global shares”.
“Looking ahead, central banks will retain their strong inflationary bias in their policy settings and tell investors the outlook for global share market valuations is still solid.”
Mr Sherwood said investors will, however, need to be wary of how company management balances their needs between the short-term return of capital, through buy-backs, and the long-term return on capital through investment.
This issue will be a “key determinant of both absolute and relative sharemarket performance in at least the next two years”, Mr Sherwood said.
