US market ever so slightly expensive but Europe still cheap, says UBS
The US market looks a little expensive compared to the European market which looks cheap.
That's the message from analysts at UBS.
The bank detailed its recent findings on Wednesday over the valuation of the US market using metrics to provide an indicator of future market performance.
"We find little evidence of market overpricing," the bank said after conducting a historical study of the S&P500 index.
On Europe however, UBS said that earnings are significantly below their long term trend in a number of European countries, hence returning to trend earnings would make the current market valuation look very cheap.
"The signal for Europe is actually supportive of a further rally," UBS added.
Meanwhile, analysts at fellow investment bank Citigroup noted that after hitting a 12x low at the worst of the 2012 Eurozone crisis, the MSCI AC World trailing price-to-earnings ratio has re-rated back up to 18x, slightly above its long-run median of 17x.
"Global equities no longer look cheap, but it is too early to say they are especially expensive," argued Citi.
The US bank said equities still look compelling when compared to fixed income with the MSCI World index offering a yield of 2.4%, above that on a US 10-year treasury at 1.9%.
"Maybe this just means that bonds are expensive but it does highlight that equities offer an attractive alternative to income-hungry investors," added Citi.
Citi is 'overweight' on Europe (excluding UK) and Japan but 'neutral' on global emerging markets and US. The bank is 'underweight' on the UK market and Australia.