If we take into account the fact that the world economy is currently in the deepest economic recession since World War II, with global GDP expected to decline by 4.4% this year, according to the latest IMF forecast from October, global stock market performance since the beginning of this year is extremely favorable.
So far, the broadest global stock market index MSCI All Country World attributes a profit of 8% this year. At the same time, in November alone, global stock markets are gaining a profit of 11%. The significantly above average November performance has been mainly due to the very promising news about new coronavirus vaccines from Pfizer, Moderna and AstraZeneca.
On the other hand, global corporate earnings are currently declining at a year-on-year rate of 27%. As a result of rising stock market prices and declining corporate fundamentals such as earnings and revenues, global stock market valuations have achieved the highest level since 2002. As a result, our global proprietary equity valuation has risen to an unprecedented +39%! At the beginning of the year, the global equity valuation was at a significantly lower level of +12%.
Therefore, our valuation model currently indicates average expected annual equities returns over the next five years, including dividends, of only around 4%. Equities, especially in the US, are currently extremely expensive, and the record low interest rates and expectations that key central banks will maintain an extremely loose monetary policy for the next few years will not change anything.
Investment Strategist at Conseq Investment Management, a.s.