Global equities are undervalued

Posted: November 19, 2010 in Burse
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Asian region is once again driving stock exchanges

“Over the past 35 years, the valuation of equities has rarely been as favourable compared to bonds as it is at the moment.” ERSTE-SPARINVEST believes that global equity investments currently have a clear advantage thanks to the disproportionately strong profitability of companies, the high level of earnings growth expected in 2011 and the relatively favourable price-to-earnings ratios and price-to-book ratios. Dividend yields are higher than the yields on euro-denominated and US government bonds, which makes equities even more attractive.

In addition, many equity markets have generated technical buy signals in recent weeks and have broken through the upper boundary of their trading range. Positive factors suggesting that additional price gains are likely include the low level of inflation and the ample available liquidity among investors, who are sitting on “healthy cash buffers”. The search for returns will automatically shift the attention of investors towards equities. “There are hardly any alternatives to equities at the moment,” emphasised Harald Egger, chief investment strategist at ERSTE-SPARINVEST. He does not believe that the decline in growth on the developed markets expected by ERSTE-SPARINVEST poses a major risk of putting an abrupt end to the upward trend. According to Egger, the markets are pricing in much lower earnings growth, so there is plenty of room for upside surprises.

The Asian economies, particularly China and Hong Kong, are once again providing important stimulus for the bull phase that is emerging on the stock exchanges. ERSTE-SPARINVEST is currently placing a strong emphasis on this region in the portfolios it manages and is cooperating with international investment firms such as Daiwa Asset Management in the management of the corresponding funds. The persistent population growth requires massive investments in infrastructure. According to Paul Severin, an investment strategist at ERSTE-SPARINVEST, the economic data that has been released indicates that growth has not diminished in Asia. The Chinese purchasing managers index for the manufacturing sector has shown positive development recently, and direct foreign investment is consistently strong. Industrial production was the only indicator that came in somewhat weaker than in the previous month. Many developed markets can only dream about achieving growth rates above the 10 per cent mark, said Severin.

Along with the infrastructure segment, which ERSTE-SPARINVEST covers with ESPA STOCK ASIA INFRASTRUCTURE (ISIN AT0000A05S63), the company’s investment strategies are focused on the population boom in urban areas. The global surge in urban growth is primarily taking place in Asia. The so-called “mega-urban regions”, which stretch up to 50 kilometres from the city centre into the urban hinterland, are providing important stimulus for entire sectors of the economy, such as the construction industry. In this segment, ERSTE-SPARINVEST offers a fund for investors with a high level of risk tolerance: ESPA STOCK ASIA-PACIFIC PROPERTY (ISIN: AT0000A03MW8).

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