July 24 (Reuters) – Even adjusting for extraordinarily low
interest rates, global equities are expensive and finding
double-digit annual real returns over the next five years is
going to be tough.
What’s worse, key markets, notably the U.S., are so
overpriced that there is a high likelihood of an upcoming
correction, according to a new study by Joachim Klement and
Oliver Dettman of economics and investment consulting firm
Wellershoff & Partners. (here)
The results should give pause to all who think that going
along for a central-bank-underwritten ride in the equity markets
is always a good idea.
“We show that high valuations like those currently recorded
actually lead to lower expected future returns and to increased
risks of significant drawdowns, including possibly permanent
loss of capital,” the authors write.
“To be clear, today’s high valuations are an alarm bell for
the future that investors should take very seriously.”