Equities bell a long way from being rung

In the short run it's inevitable that equity markets will fall from time to time but, in our opinion, it's not possible to reliably forecast these falls ahead of time.

By Stuart Eliot · 19 Sep 2014

By Stuart Eliot ·
19 Sep 2014

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In the short run it’s inevitable that equity markets will fall from time to time but, in our opinion, it’s not possible to reliably forecast these falls ahead of time.

Stuart Eliot, Diversified Strategies Portfolio Manager, BTIM

The most often asked question by investors ‘is whether the market is now intrinsically expensive?’ According to BTIM’s Stuart Eliot the answer is ‘We don’t think it is.’

This assertion is supported by the rolling 3-year total return for Australian equities, which are operating near enough to historic averages.

Next consider the ratio of the price to earnings (the P/E ratio) for the Australian market, and at a tick over 10%, it is slightly higher than the pre-GFC averages. This means that even if conditions were unchanged compared to the period before the GFC, the market is well within the normal P/E range and as a consequence, there is no cause for concern.

Elliot also claims that the US market is fairly priced against earnings and the Australian market is arguably 25% undervalued.

As the old saying goes, they don’t ring a bell for the top of the market, but if they did, we think it’s still a long time until anyone rings it.

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Frequently Asked Questions about this Article…

Is the current equity market considered expensive?

According to Stuart Eliot from BTIM, the equity market is not considered intrinsically expensive. The rolling 3-year total return for Australian equities is near historic averages, suggesting the market is fairly valued.

What is the current P/E ratio for the Australian market?

The current price to earnings (P/E) ratio for the Australian market is slightly over 10%, which is a bit higher than pre-GFC averages but still within the normal range, indicating no immediate cause for concern.

How does the Australian market's valuation compare to the US market?

Stuart Eliot suggests that while the US market is fairly priced against earnings, the Australian market is arguably 25% undervalued, presenting potential opportunities for investors.

Can we predict when the equity market will fall?

It's inevitable that equity markets will experience falls from time to time, but according to Stuart Eliot, it's not possible to reliably forecast these falls ahead of time.

What does a rolling 3-year total return indicate about the Australian equities?

The rolling 3-year total return for Australian equities is operating near historic averages, which supports the view that the market is not currently overvalued.

Why is there no cause for concern about the current P/E ratio?

The current P/E ratio is slightly higher than pre-GFC averages but remains within the normal range, suggesting that the market is not overvalued and there is no immediate cause for concern.

What does the saying 'they don’t ring a bell for the top of the market' mean?

This saying implies that there is no clear signal or indication when the market has reached its peak. According to the article, it's still a long time until anyone rings that bell, suggesting the market has room to grow.

Is the Australian market undervalued compared to historical standards?

Yes, according to Stuart Eliot, the Australian market is arguably 25% undervalued, which could indicate potential investment opportunities for everyday investors.