Global equities continued to recover as investor risk appetite improved on the back of cyclical economic and business recovery over the past 12 months. The 12 months return for all countries index clipped at 27.7% with EM outperforming DM and Frontier markets. Investors with diverse portfolio exposure have benefited from this recovery in global equity market. Investors with high beta exposure to Market, Value and Small caps have done even better.
Overall, the valuation of Global equities appears expensive on a range of indicators. For instance, the overall developed markets are trading on 27.5 times Shiller PE (cap weighted) and while the median company is trading on 2.1 times book. Within the broad market numbers, the median Price to Book of a large growth company is 3.5 times book while a large value company is trading at 0.4 times book. This valuation dispersion offers opportunities for active investors to be highly selective.
A systemic shock of the scale seen during the depths of the pandemic in mid-2020 created a massive valuation and fundamental dispersion. It is not a surprise then to see leadership or trend changes at the country, sector, style, factor and regional level.
Small to mid-markets of Austria, Sweden, Norway, Netherlands and Canada led the pack with substantial double digit returns in excess of 30%. Australian equities ranked 9th with 28% return, thanks to strong performance in the Banking and Resources sectors that dominate the local bourse. New Zealand was the worst performing market in developed world over the past 12 months.
Overall, the data shows that return and fundamental dispersion at country, sector, style and security level is offering active managers opportunities to be rewarded for good market and stock selection skill.