According to the broadest global stock index MSCI All Country World, global stock markets have strengthened by 2% in the last five working days. As a result, our global proprietary composite equity valuation increased from + 8% to + 11%.
It thus slightly exceeded the neutral range of -10% to + 10%, in which we can consider the valuation of global stock markets to be fair or neutral. Therefore, global stock markets are currently valued somewhere between neutral or fair level and slightly expensive level. We now expect the average expected annual return over the medium term of the next five years, including dividends, to be around 7-8%.
Our alternative valuation model of global stock markets is the global proprietary profit margin adjusted P/E, which seeks to adjust the volatility of the net profit margin of the traditional trailing P/E. This is currently at 24.0, which is slightly above the long-term average plus one standard deviation of 23.6. According to this valuation indicator, global stock markets thus appear to be rather expensive. At the beginning of the year before the outbreak of the global coronavirus pandemic, the value of this indicator was even higher at the level of 27.0.
Investment Strategist at Conseq Investment Management, a.s.