Is Valuation the Next Big Risk?

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Our valuation metrics show low but increasing expensiveness in growth assets, with credit more expensive than equities. The graph below shows cross asset valuation metrics as a function of an increase in rates. The key difference between a conventional PE analysis and our approach to valuation from a cross asset allocation perspective is that we discount the impact of rates: lower rates make higher PE ratios structurally possible. According to our calculations, a simple increase of the whole yield curve by 1% would make our valuation indicators for equities quite negative (i.e. calling for an underweight). Pricing risk is therefore significant.

 

Is Valuation the Next Big Risk?
Source: Bloomberg, Unigestion. Data as at 16 November 2020.


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