Undergrowth value

You may have failed to notice, then, that the MSCI World Index hit another all-time high in July (and another one at the start of August). Given the heavy weight of US stocks in this index (well above 70%), it is clear that quite a few companies outside the US are doing quite well, thank you.

Similarly overlooked, several European indices, such as the STOXX Europe 600, also reached new all-time highs this month. And, while I’m at it, so did the MSCI World Value Index – which (you wouldn’t know it from the headlines) beat its growth sibling by 6 percentage points in July alone. Seems there’s a lot of exciting business to be found in the undergrowth of global stocks. Mind you, in fundamental terms, like revenue and earnings, these are hardly minor companies. Just less conspicuous in terms of market cap and attention.

You may find it interesting to note that the large number of all-time highs was not driven by lower interest rates. On the contrary, they coincided with decidedly higher rates. Despite no policy rate hikes in developed markets (except New Zealand), yields on government benchmarks rose across the board, on both sides of the Atlantic, and at both ends of the yield curve (which got just a bit steeper).

Then again, you may not have noticed that earnings yields rose, too. There’s been a lot of talk about the expensive stock market, but the fact is that the S&P 500 is now priced at less than 20 times next 12 months’ estimated earnings, while European stocks typically average 15 or slightly below. In other words, investors demanded higher returns from equities as well – and it seems companies largely delivered.

So here’s a comment you wouldn’t expect to hear from an economist: Don’t worry so much about macro news and tidings of war in the Middle East. For now, at least, this is primarily about earnings.

Norwegian stocks were the exception last month, with the benchmark consensus P/E rising to 11.8. That largely reflects a July benchmark return of 5.8%, on the back of sharply higher oil prices and not least gas prices. It’s still one of the nominally cheaper markets around.

And for several of these markets, I do know strong, solid portfolios with even lower pricing and higher expected growth. But let’s not veer into marketing territory.

Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager’s skill, the fund’s risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments. This is marketing communication.