25 Sep Market Commentary – September 2018
Global Market Outlook: Strong Earnings
Global equities pushed higher last month reflecting steady bond yields, reasonable valuations and – most importantly – continued strength in earnings. Technology remains flavour of the month, whereas gold exposures are least favoured.
Watch more from Ben Bassanese, Chief Economist at Betashares…
Unhedged international equities were the best performing of our seven core asset classes in August, returning 4.1%. With global interest rates and equity valuations holding relatively steady, continued solid earnings growth underpinned global equity returns, while a drop in the Australian dollar also boosted returns in Australian dollar terms. Australian property posted the second-best return of 2.7%, helped by a decline in local bond yields as RBA rate hike expectations were further reduced due to persistent low inflation. In terms of relative momentum, International equities and Australian property remain the two strongest performing asset classes at end-August, while gold and international bonds were the weakest.
On a month-end total return basis, global equities have all but fully recovered from their losses earlier this year. The rebound in equities have been largely driven by earnings, with an ongoing lift in interest rates placing some downside pressure on PE valuations. The global PE ratio ended August at 14.9, compared with 16.4 at end-January. Interest rates have steadied in recent months while the earnings outlook remains upbeat. Relative to interest rates, PE valuations also do not appear excessive, with “fair-value” PE based on the current level of global bond yields estimates at 16.6. Current expectations suggest a rise in forward earnings of around 12.5% by end-2019.
Australian equities pushed higher in August, even though forward earnings appear to have levelled off. Indeed, unlike the case globally, earnings expectations have eased in recent months. It has been rising valuations, rather than earnings, that has largely pushed the market higher in recent months. In turn, higher valuations have been supported by easing local bond yields. Relative to current bond yields, the market could be considered “fair-value”, but is becoming expensive relative to global equities.
For the full article, you can read it here.
If you would like to know more, talk to Michael Sik at FinPeak Advisers on 0404 446 766 or 02 8003 6865.
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