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Asian stocks reach highest ever level

Author: Sam Green/Wednesday, November 22, 2017/Categories: Mikes Blog

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Today, the MSCI Asia Pacific index hit its highest ever level, surpassing the previous peak, which was recorded before the falls of the GFC; all the way back in 2007.

The index, which seeks to capture the performance of mid and large capitalisation Asian shares, has been on strong uptrend this year, in a similar fashion to US markets; it has recorded only one month of negative performance in 2017.

The rally is largely attributable to increases in company earnings in the region according to Timothy Moe, an analyst at Goldman Sachs Group. Mr Moe believes that the trend will continue, stating that “Macro growth should remain firm, driving a 14 percent rise in profits”

US markets are also being led higher by strong earnings growth, and prospects of a tax cut; indeed, Goldman Sachs Group Inc. lifted its forecast for U.S. stock gains in 2018 with their target for the S&P 500 raising from 2,500 to 2,850 – which is an additional gain of 10 percent on the index’s current level.

Whilst many equity markets are trading at or near all-time highs, Australian equity markets are still lagging somewhat, with the XJO index of Australia’s largest 200 listed companies still well off its 2007 peak.

There are many reasons that our market has been left behind, put simply, it is a story of the earnings growth of our market being largely weaker than elsewhere. This is driven by the fact that Australian companies typically pay a large proportion of their earnings as dividends, which means that there are relatively less earnings being reinvested into businesses in order to drive further earnings growth. There are certainly other factors as well, with Australian stocks currently trading at lower valuations (by many metrics) than many other equity markets.

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