Is there anything cheap left?

Chris Watling

Longview Economics

As we’ve highlighted in the two previous quarterly asset allocation valuation publications, (pretty much) everything is expensive. Abundant liquidity has pushed valuations in many areas of global financial markets up to high, and even extreme, levels.

This upward pressure is evident in a variety of valuation metrics across and within those asset classes:

  • median sector PE ratios, for example, are still close to 2020 highs;
  • the share of global equity markets with a top quartile PE ratio remains close to YTD highs;
  • high proportions of US, UK and Eurozone equities have PE ratios above 20 (relative to those with PE ratios below 10, as shown in figures 9i below and 9viii in the full document).

Other valuation excesses include high house prices (in many parts of the world), negative bond yields, and elevated US household net worth relative to GDP. Despite that, on a relative basis, there are some areas of the market that are attractive: Median PE ratios of stock indices, for example, suggest that US stocks are undervalued relative to the Eurozone.

Likewise, on a sector level, defensive sectors are at all-time low valuations relative to the overall market. The dollar, meanwhile, is expensive on various metrics (which means that the other side of various currency pairs are, therefore, cheap). As such, we’ve highlighted below three key areas of the market in which valuations are particularly extreme or attractive.

Of note: 

  1. a new commodity super-cycle is likely to be underway (albeit maybe a shortened version); 
  2. various non-dollar currencies appear cheap on a variety of metrics; and 
  3. key defensive sectors of the global equity market are also notably cheap (see "Key points" section in the full document for details).

The full document is available in the PDF below.

Stay up to date

Don't forget to follow my profile to stay up to date with my latest wires, which means you'll be notified every time I post a wire. Not already a Livewire member? Sign up today to get free access to investment ideas and strategies from Australia's leading investors.

This Publication is protected by U.K. and International Copyright laws. All rights are reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted, or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means, except as permitted under agreement with Longview Economics Ltd. This publication is proprietary and limited to the sole use of Longview Economics’ clients and trial subscribers. Each reproduction of any part of this publication or its contents must contain notice of Longview Economics’ copyright. This agreement shall be governed and construed in accordance with U.K. Copyright law and the parties hereto irrevocably submit to the exclusive jurisdiction of the English courts in respect of any dispute or matter arising out of or connected with this Agreement. Any disclosure or use, distribution, dissemination or copying of any information received from Longview Economics Ltd. is strictly prohibited, whether derived from the reports or from any oral or written communication by way of opinion, advice, or otherwise with a principal of the company; and such information is not warranted in any manner whatsoever; and is for the use of our clients and trial subscribers only. Longview Economics Limited will not be liable for any claims or lawsuits from any third parties arising from the use or distribution of this document. This report is for distribution only under such circumstances as may be permitted by applicable law. This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. Certain services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or may not be eligible for all investors. All information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to the accuracy or completeness. All information and opinions as well as any prices indicated are current as of the date of this report, and are subject to change without notice. Some investments may not be readily realisable since the market in securities is illiquid and therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. Futures and options trading is considered risky. Past performance of an investment is no guarantee of its future performance. Some investments may be subject to sudden and large falls in values and on realisation you may receive back less than you invested or may be required to pay more. Changes in foreign exchange rates may have an adverse effect on the price, value or income of an investment. We are of necessity unable to take into account the particular investment objectives, financial situation and needs of our individual clients and we would recommend that you take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein. Longview Economics Ltd. is an appointed representative of Messels Limited. Messels Limited is authorised and regulated by the Financial Conduct Authority.

1 contributor mentioned

Chris Watling
CEO & Chief Market Strategist
Longview Economics

Longview Economics, founded in 2003 by Chris Watling, is an independent research house based in London, providing three distinct yet interrelated groups of research products: Short and medium term market timing; Long term global asset allocation...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.