With price to earning (PE) ratios falling dramatically over the last decade, now is the time to buy global stocks, according to Insync Funds Management senior portfolio manager Bob Desmond.
Desmond pointed in particular to US equities: “Over the last ten years large cap global shares have gone from being wildly overpriced to reasonable value. This is seen by the S&P500 moving from a PE of 35 times to a current PE of 14 times,” he said.
The drop in the PE ratio had resulted in a paltry return from the S&P500 of 1.3 per cent per annum, he added.
But the key factor that should push investors towards US equities was the re-rating of the Australian dollar, which had gone from 50 US cents in 2001 to parity today, Desmond said. To illustrate his point he gave the example of Microsoft shares. They had a PE of 50 in 2001, whereas they have fallen to 10 in 2011.
“This shows for each dollar invested in the company, an Australian investor is getting 10 times more ‘bang for his buck’. Investors as a group are always looking and always want to buy ‘what has gone up’,” he said.
In 2000, investors were fleeing from resources companies and emerging markets, and instead buying technology and US large cap stocks – and ten years later they are doing the opposite, Desmond said.
