Global equities reasonably priced
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.
Recommended for you
Infrastructure assets are well-positioned to hedge against global uncertainty and can enhance the diversification of traditional portfolios with their evergreen characteristics, an investment chief believes.
Volatility in US markets means currency is becoming a critical decision factor in Australian investors’ ETF selection this year.
Clime Investment Management is overhauling the selection process for its APLs, with managing director Michael Baragwanath describing the threat of a product failure affecting clients as “pure nightmare fuel”.
Global X will expand its ETF range of exchange-traded funds next month with a low-cost Australian equity product as it chases ambitions of becoming a top issuer of ETFs in Australia.
