MARKETS SPECTATOR: Fear of missing the melt-up

Perpetual’s Matt Sherwood is mystified as to why stock markets keep hitting new highs. He’s not alone.

It’s an eye-catching, if not ear-catching phrase: “market melt-up”. That’s how Perpetual’s Matt Sherwood, in his entertaining morning round-up of global stock markets, describes investor sentiment toward shares.

“The market mood is increasingly turning towards fear, fear of missing the ‘melt-up’ in markets, rather than a collapse back down on the back of weak fundamentals, with inflows now driving markets more than anything else,” says Sherwood, who is the strategist at the Sydney-based fund manager.

The S&P/ASX 200 Index is now trading at 14.4 times forecast earnings, bang on its 20-year average, according to UBS. Excluding mining stocks the market is trading at 15 times. That’s expensive, UBS adds. Excluding resources and non-financial stocks, the market’s PE is even higher, at 16.4 times.

The Australian market is also expensive compared to its peers. The MSCI World Index is trading at 14 times, according to UBS. The MSCI Asia ex Japan, which also excludes Australia, is trading at 11 times.

UBS has a year-end target for the S&P/ASX 200 Index of 5250. The index closed at 5209.04 yesterday. UBS views the market as “a little toppy”. But in a world of low rates, investors seem enamored of the higher dividends offered by shares, according to UBS.

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