International Shares

US stocks still overvalued

US stocks

US shares remain overpriced on the back of optimistic economic forecasts, with other global markets likely to offer better investment opportunities.

A fund manager specialising in offshore market offerings remains pessimistic about the value global equities, particularly United States stocks, can offer investors in 2023 with the exception of a few regions.

In particular, Talaria Asset Management co-chief investment officer Hugh Selby-Smith has recommended individuals minimise allocations to US equities amid varying predictions of the type of recession the country is headed for.

This sentiment is based upon overly optimistic forecasts for the US economy in the immediate future that have produced inaccurate equity valuations.

“US shares are expensive, pricing in a ‘soft’ or even ‘no landing’. Compared with 2007, many of the forward sales bands of the global index are so high as to be pricing in a good outcome. Usually when this is the case, upside is scarce and risk abundant,” Selby-Smith noted.

He pointed out there are still significant economic signs indicating US stocks will depreciate in the coming months.

“This [expectation] is against a backdrop of unusually rapid interest rate increases in developed markets, falling leading economic indicators such as housing sentiment and sticky inflation components squeezing near record levels of profitability,” he said.

However, he acknowledged investing in certain US shares might still be beneficial for individuals and their inclusion could still help in achieving better portfolio construction. He also identified the countries other than the US that are currently offering the best return opportunities.

“As always, there will be individual opportunities at the stock level that fall outside my general observations. One of the virtues of these opportunities is that they offer diversification,” he advised.

“In terms of regions, Japan and the UK offer value. From a thematic point of view, capex growth and onshoring are likely to have positive long-term benefits for countries like Mexico and industries like industrial automation.

“But most importantly, equity investors should prize income, good value, short duration and rapid payback periods when looking at returns. That means looking towards large-cap healthcare, especially pharma majors, for attractive options.”


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