So far this year, global stock markets have recorded above average gains, taking into account the economic impact of the pandemic. The broadest global stock index MSCI All Country World has been appreciating at 7% since the beginning of the year.
Particularly in the last week since the US presidential election, stock markets have risen sharply, also under the influence of reports of a promising vaccine from Pfizer. As a result, the global stock market capitalization has reached a new all-time high of $ 95 trillion. At the beginning of the year, the market capitalization was $ 87 trillion.
However, due to the solid stock growth on the one hand and a sharp decline in corporate fundamentals such as earnings on the other, equity valuations reached very high levels, the highest since 2002. At the same time, starting valuations are crucial for expected five-year performance. Investors should therefore accept that equity returns are likely to be very weak over the next five years, as valuations should gradually move significantly lower from the current tremendously high levels.
Michal Stupavský
Investment Strategist at Conseq Investment Management, a.s.