According to Money Management, the leading super fund advisor, Mercer Investment Consulting, believe that global equities are fairly priced and may be in for a tough time. We have regularly pointed out the very high hazards associated with equities investments, which tend to be underestimated by most folks. And these risks seem to be rising as global markets become increasingly interconnected. We have also highlighted the fact that it took the ASX All Ordinaries Index around nine (yes, "9") years to regularly breach its previous peak after the last similarly sized correction: the 1987 stock market crash. Our own portfolio optimisation analysis over the last 30 years suggests that most Australian pension funds are massively overweight global equities, which offers only very poor risk-adjusted returns. In any event, the individual quoted in the Money Management report, David Stuart, is an impressive operator and always worthwhile listening to:
"The best opportunities to reap returns from undervalued global equities have passed, according to a new analysis released by Mercer.
The head of Mercer’s Dynamic Asset Allocation team in Australia, David Stuart, said the company had brought its global equity rating back to ‘fair value’ from ‘undervalued’ as the growth in global equity markets slowed over the past quarter.
“We remain optimistic that corporate earnings will continue to recover, but the markets have now built in a reasonable amount of expectation around good news in future earnings – and this has squeezed out the potential for above-average returns,” he said.
Stuart said that Mercer also believed equity markets were in for a bumpy ride with many risks still facing global economies – meaning that the case to be overweight in global equities."
