The US Share Market is highly valued compared with other markets
US equities have never been more expensive in an absolute and relative sense in the last 25 years. Fund manager, Antipodes, notes that US equities are currently 65% more expensive than the rest of the world, which is as extreme as the premium has been. And, they add, this is despite little difference between the long-term earnings growth profile of US companies versus the rest of the world. The US is home to big-cap tech, so it has disproportionately benefited from secular trends like software and the cloud, but it seems unlikely that this level of outperformance can be sustained.
“In recent history, US equities have benefited from Trump tax cuts and outsized fiscal stimulus, but these are one-off factors that don’t justify today’s premium. With record high government debt and a fiscal deficit of 13.5% of GDP, we have to question whether there is much gas left in the tank”
US equities account for around 60% of the global sharemarket index, but I doubt that the extraordinary premium for US equities is sustainable. This is one of the arguments for a diversified investment portfolio as it is quite possible that Asian or even European markets may outperform the US in the next few years.
China’s Evergrande is in trouble, does it matter?
Policy tightening and regulatory moves by Chinese authorities have significantly impacted the Chinese property market with flow-through impacts on large property developers like Evergrande and even iron ore suppliers such as BHP. Evergrande has too much debt and has been put under increasing pressure as Chinese authorities have increased mortgage rates and funding costs for property developers.
There is scant evidence that Evergrande’s problems are going to lead to a significant economic downturn in China and there is also little likelihood that this potential large corporate collapse will transmit into problems in other countries. Some investors and lenders to Evergrande will suffer losses but the impact more broadly is likely to be limited.
Chinese authorities have to a large extent deliberately engineered the current slowdown in the property sector, but they have the policy tools to ensure this doesn’t become a broader economic problem. The legitimacy and credibility of the Communist Party of China is dependent on its ability to sustain economic stability and social harmony and a crash in the Chinese property market would threaten that so, while a Chinese economic slowdown appears underway, it is doubtful that this will turn into an economic collapse. Let’s hope not as that would be bad for Australia!
Andrew’s Pending Retirement
Andrew has decided to retire sometime in the coming months and is commencing the process of finding someone suitable to take over from him. There is no fixed timetable for this, and Andrew will be available to assist you until such time as a formal handover occurs.
Andrew says, “Firstly, I want to sincerely thank you for your support and for entrusting me to assist you with financial and other issues. I have always taken this responsibility very seriously and recognise the trust you have put in me to help you navigate the complex world of Superannuation, Investments, Insurances, and the like.
“I have been asked why I am retiring and in truth, there is no single reason but several factors coming together to convince me the time is right. In no particular order these include frustration with the ever-increasing level of compliance the financial advice industry is subjected to, reaching my mid-60s, a desire to travel more extensively, wondering when I’ll get to read more books, greater awareness of my mortality having had cancer treatment (I should add that I’m currently well), and a desire to free up more time to spend with friends and family. I also want to give more back to a country that has given me so much.
“Everyone’s journey is different, and I am truly privileged to have shared mine with so many interesting people from different walks of life. I’m looking forward to whatever the next chapter brings, even if my wife Jane is a bit nervous about having me around more!”
This newsletter contains general advice. It does not take into account your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.