Latest news with #equityvaluations
Bloomberg
4 days ago
- Business
- Bloomberg
India's Lofty Equity Valuations Are Pure Bollywood
Even to seasoned investment professionals, India's lofty equity valuations are a head-scratcher. How's a sell-side researcher to explain to a foreign institution that the country's cement makers are more than twice as expensive as their peers in every other major market? Building materials are just one example, though that's what analyst Sanjeev Prasad and his team at Kotak Institutional Equities picked to raise some provocative questions in a recent investor note, titled What the cement sector tells us about our industry.
Reuters
19-05-2025
- Business
- Reuters
Undimmed US 'exceptionalism' seems improbable
LONDON, May 19 (Reuters) - With heads still spinning from Wall Street's 180 degree turn over the past six weeks, investors are skeptical over still 'exceptional' U.S. stock market valuations that have barely flinched. Few doubt a de-escalation of Washington's trade war - for the next month or two at least - defused a panic. The over-caffeinated waxing and waning of recession warnings speaks to that even if U.S. import tariffs are rising regardless. But the re-inflation of extreme relative U.S. equity valuations can only be warranted if U.S. 'exceptionalism' is truly unscathed. And here's where the story seems improbable, especially if you assume the administration's stated goal of upending the status quo that existed prior to its term. Business as usual is not part of the policy design. On the face of it, the S&P 500 (.SPX), opens new tab is back in positive territory for the year for the first time since February, remarkably less than 4% from its all-time high from February. The VIX 'fear index' of equity volatility has subsided to the lowest since March and back below its long-term average. And before you think that's all just a mega-cap tech rebound, the equal-weighted S&P 500 (.EWGSPC), opens new tab is also back in the black for the year too. Both had been down 12-15% for the year shortly before April 8's 90-day pause on the draconian 'reciprocal tariff' plan of a week earlier. There are several reality checks to that, however. The tech-heavy Nasdaq (.IXIC), opens new tab, small-cap Russell 2000 (.RUT), opens new tab and exchange-traded funds in so-called Magnificent Seven top caps remain in the red for 2025 to the tune of 2% to 6%. More crucially, the S&P 500 itself is still underperforming MSCI's all-country index (.MIWD00000PUS), opens new tab by some 3% for the year so far. And, with the dollar (.DXY), opens new tab down about 6%, it lags Germany's DAX (.GDAXI), opens new tab, the broader euro zone (.STOXXE), opens new tab benchmark and Hong Kong's Hang Seng (.HSI), opens new tab by anywhere between 15-30% in dollar terms for 2025. But it's the valuation rebound that arguably causes most puzzlement with so much of the economic and policy disturbance left unresolved. The S&P 500's 12-month forward price/earnings multiple has jumped back above 20. Although still off February heady peaks over 22, it continues to surf almost 20% above its own 30-year average, more than 40% above equivalent European STOXX 600 (.STOXX), opens new tab valuation and more than 60% above the MSCI emerging markets index (.MISCIEF), opens new tab and Britain's FTSE 100 (.FTSE), opens new tab. That still spells exceptional in most people's books and has to assume those revised U.S. recession warnings remain under wraps and 'value investors' don't get tempted away, or back home, in the case of the trillions of overseas dollars in the market. "Those with sympathy for the MAGA ambitions and methods could believe U.S. exceptionalism will continue to deliver high returns, with strong capital inflows representing a willingness to hold and increase dollar holdings amongst investors in the rest of the world," mused Chris Iggo at AXA Investment Managers. "Recent events might cast some doubts on those assumptions." Iggo wrote that the only meaningful factor that had improved of late was sentiment and relief, driven in part by announcements of billions of dollars in deals done by President Trump on his Middle East tour last week. "Sentiment is fickle though. It could turn sour when the reality of weakening economic data becomes evident," he added. As to whether U.S. market pricing remains extreme, Iggo cast back to legendary investor Warren Buffett's indicator of excessive valuation being defined by how much overall market cap exceeds a country's GDP. Using the Wilshire 5000 (.FTW5000), opens new tab as a measure, U.S. equity market cap is now more than 200% of GDP - twice where it was a decade ago, twice that of France or Britain and more than 50% bigger than the same ratio for Japan. Even if U.S. recession is avoided, the overarching Trump plan to rebalance world trade with higher tariffs, narrower U.S. deficits, a countervailing capital flow reversal, weaker dollar and domestic demand spurs overseas challenge that market exception. Some point to enduring long-term themes of U.S. tech leadership and innovation. But even if faith in that persists, the current disruption has multiple hurdles over the summer ahead. July and August stand out as particularly tricky months. Ninety-day tariff pauses on global and Chinese tariff hikes expire in July, the 180-day review of U.S. membership of all multilateral institutions comes up that month too and the deadline for raising the U.S. debt ceiling drifts back onto the radar amid currently fraught budget negotiations. On top of that, the Federal Reserve's best guess on when tariff rises start to infect inflation in earnest is June - numbers set to be published in July. And even in most investors' best-case scenario of "only" a 10% universal tariff increase, the risk there is that it resolves little. "Settling on a 10 percent tariff might ... be the worst of all worlds—from the perspective of Trump's objectives," wrote Council on Foreign Relations President Michael Froman. "It could be too low to raise substantial revenue, too high to avoid pushing up prices, but not high enough to re-industrialize the United States." The opinions expressed here are those of the author, a columnist for Reuters
