The Stock Market Charges Ahead, Despite the World’s Storms
He examined valuations of 15 stock markets and 15 bond markets since 1800 and concluded
that “at an aggregate level, an equally weighted bond/equity portfolio has never been more expensive.” Bonds alone have never had such rich valuations, meaning low yields, since 1800, he said, and stocks have been more expensive just over 10 percent of the time.
Mr. Turnill of BlackRock said that investors were “paid to take risk in emerging markets in particular.” As for international markets in general, he cited their lower valuations and “higher operational leverage to economic expansion,” meaning
that earnings of companies there were more sensitive to a pickup in activity than those of American companies.
Mr. Reid said the high valuations come at a particularly fraught time, because of “the incredibly unique size of central bank balance sheets, debt levels, multi-century all-time lows in interest rates
and even the level of potentially game-changing populist political support around the globe.”
Rich valuations were among the factors that prompted warnings in the third quarter of an imminent correction in stocks.
He said he was “more skeptical of high-yield and emerging markets.”
“If you wanted to take a walk on the wild side,” he said, “you should have been doing that in 2010.”
Bond funds provided a walk on the mild side in the third quarter, gaining 1.2 percent on average, according to Morningstar.
After having a subdued growth profile, there’s some pent-up demand there, especially vis-à-vis the U. S.”
The average international stock fund rose a healthy 5.4 percent in the third quarter, led by gains
of 7.9 percent in emerging markets, 10.9 percent in China and 18 percent in Latin America.