'Overvalued' equities still offer relative value
Originally published on Investor Daily on 12 January 2017
Equity markets currently offer better value than bond markets despite their current overvaluation, according to Activus Investment Advisors.
Activus Investment Advisors managing director Robert Talevski noted that equity markets had seen the "biggest fluctuations" of any asset market since the global financial crisis in 2008, but added that their current pricing was expensive.
"Equity markets are no longer cheap and, in most cases, have become overvalued to some extent," he said.
Nevertheless, Mr Talevski said there "still appears to be some value" in equities when compared with bond markets "due to bonds being very expensive as investors seek safe havens to escape the volatility and uncertainty being seen within economies and markets".
"Many bond markets are now seeing negative yields and, as such, investors are not being rewarded for holding these investments," he said.
Mr Talevski said bonds' inverse relationship with equities meant it "made sense to invest in them" as bond markets typically benefit from downturns that negatively affect equities and reduce volatility risk, but added that there were other means investors could employ to achieve similar results.
"Although there is some inverse relationship, investors can achieve a similar return without duration risk by holding cash-based instruments," he said.