Where to from here...can equity markets keep going?
Despite the strong returns achieved last quarter, for euro investors in particular, I continue to take the ‘glass half full’ view and believe that equities can make further progress over the next 12 -18 months. It’s worth highlighting that in absolute valuation terms, equities are no longer cheap, as the MSCI World equity index is now on a P/E ratio (using 12 month trailing earnings) of 18 versus the 16.9 times historic average, and so equities are now above fair value relative to history. My core expectation from here is that further upward progress will be in line with earnings and dividend growth rather than by further P/E expansion. The slow-but-sure economic recovery we forecast will support this.
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