Yet in terms of valuations there is nothing that would justify such euphoria. The trailing price-to-earnings (p/e) ratio is close to 41, almost twice the p/e ratio of the S&P 500, and analysts expect the earnings of this index to more than double in the coming year.
In Europe, political risk clouds any of the positives that equity markets have to offer.
While some believe the French election – despite the outcome – might well be the catalyst for a meaningful rally in European equities, investors must be aware of the potential volatility that could materialise in the run-up to the election.
It might also be appropriate for investors to consider upgrading their stance on emerging markets. The rationale for this is partially due to the fact that valuations have improved somewhat and that the US dollar’s strength seems to be fading.
When it comes to global equity markets, investors are stuck between a rock and a hard place. Ignoring Japan for a moment, US equities are too expensive and European equities are too risky. Hence emerging markets might well become a ‘cheapish’ safe haven market for investors in the coming months.
Hartwig Kos is deputy chief investment officer at SYZ Asset Management