Global equity markets continued to rally in June as Australian equities continue to overperform, but there are cautions over stock selection as equity market gets more expensive.
According to market commentary from Bruce Apted, head of portfolio management – Australia active quantitative equities at State Street Global Advisors, the risk rally had driven global equity markets to more expensive valuations.
The year to date returns had seen the MSCI World index up 17.8 per cent and the S&P ASX 300 up 19.8 per cent.
“The current PE multiple for the S&P ASX 300 index stands at 16.2 times compared to the long run average of 14.3 times,” Apted said.
“With the risk rally driving global equity markets to more expensive valuations we will be looking for company earnings in coming months to start to improve to justify current prices.”
“As the broader market indices become more expensive it becomes more important for careful stock selection.”
The communications and materials sectors had also seen strong performances for the first half of the year, with the latter benefitting from iron ore prices.
“The iron ore market has continued to tighten and iron ore prices have rallied from A$69 to A$109 or 58% in the last 6 months,” Apted said.
“The Communication Services sector has been the standout performer up 30.8 per cent in the last 6 months with Telstra being a major contributor.”