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.