FNArena’s Weekly Insights – September 16 2024

In this week’s Weekly Insights:

-Plenty Of Traps In Share Market Valuations
-Post-August Key Picks
-FNArena Talks
-Gen.Ai – A New Section On The Website

By Rudi Filapek-Vandyck, Editor

Plenty Of Traps In Share Market Valuations

Financial markets operate in a constant flux because of changes in geopolitics, monetary policy, societal progression and technological innovation. As investors, it’s probably best we keep a watchful eye out for any lasting changes, lest we be guided by the past rather than the future.

One of such changes that has not yet received enough attention is the fact the local share market has become noticeably more ‘expensive’ throughout the post-GFC years.

As was highlighted in a report by Morgan Stanley last week, the long-term average PE ratio for the ASX200 is now 14.7x, which is higher than the 14.4x that once served as the multi-decade average stretching back to the early nineties, but the average for the past decade sits at 15.9x.

That increase of almost 1.5x has happened without mining and energy being sustainably upgraded, which tells us a lot about a share market wherein these sectors represent some 30% of the index.

The observed increase in the average market multiple is partially attributable to changes in the composition and weightings of the index itself. CSL ((CSL)), which constantly trades on above-average multiples, is now the third largest constituent, while the likes of WiseTech Global ((WTC)), Block ((SQ2)), Pro Medicus ((PME)), Hub24 ((HUB)), REA Group ((REA)) and Car Group ((CAR)) have gradually climbed up the local ranks.

But it’s not just that.