FNArena’s Weekly Insights – June 02 2025
In today’s Weekly Insights:
How Expensive Is Expensive?
By Rudi Filapek-Vandyck, Editor
Equity markets look “expensive”.
There’s virtually nobody around who will fiercely dispute that statement, but does this by definition mean we should all worry about the next sell-off forthcoming?
Recent client conversations by analysts at Morgan Stanley appear to suggest investors have –sort off– given up on the ongoing valuation/over-valuation debate.
On the analysts’ observation, there is now a “genuine fatigue” among investors when conversations migrate towards things like average and historic PE levels and equity valuations versus inflation and bond yields.
As far as Morgan Stanley’s experience goes, local investors are way more interested in identifying companies that source their earnings locally and offer quality and defendable earnings stories. Clearly, this year’s context has put tariffs and tariff risk on everyone’s mind.
Banks Loom Large In Australia
This also tells us a lot about why Australian banks refuse to “come down to earth”, so to speak, despite just about every sector analyst and his pet (dog/cat/parrot) calling the sector overvalued by double digits.
The world remains uncomfortable with what can possibly be decided at the White House tomorrow.
Australian banks might not offer the same excitement and growth potential as the likes of Nvidia and Microsoft in the US, or try defense companies in Europe, but viewed through this year’s specific risk assessment, they are solid enough havens that don’t keep investors awake at night.
At some point, one would assume, either underlying fundamentals will need to catch up, or today’s share prices will revert back to much lower levels.
According to analysts at The Intelligent Investor, the sector in Australia awaits in all likelihood another lost decade, just like the first ten years after the GFC delivered no net gains for loyal shareholders.
Except it lasted more than ten years, and CommBank ((CBA)) has been the stand-out exception (as I have pointed out time and again).
Banks remain the largest index constituent in Australia, and with none of them still trading below consensus target (outside of Judo Bank ((JDO)) and Macquarie Group ((MQG)), it goes without saying today’s key indices in Australia all look inflated, pricey and bloated.
One can see why so many investors and market commentators feel nervous and uncomfortable, also because May yet again delivered outsized returns for local investment portfolios.
Ord Minnett Is Bearish
Last week, Head of Asset Allocation at Ord Minnett, Malcolm Wood released a valuation update for the Australian market and made his conclusions clear from the get-go: valuations in Australia are “extreme” no matter the angle from which an assessment is made.…….
