After such a strong run this year in stock markets around the world, investors are concerned that something nasty is about to happen. Unless there is a strong view about the dollar, interest rates, or a global price shock then the question comes down to valuation. Have markets become too expensive and therefore should we retreat a little before year end?
To us, this looks like a broader move in sentiment to cut back on positions that have done well, i.e. a question of valuation and profit-taking. This does not appear to be because of any fundamental change to market earnings or economic conditions.
We think that Asian markets never got expensive. Valuations have come up from multi-year lows (which also depresses the 10-year average, making that comparison lower than it might otherwise be) and are supported by strong earnings growth forecasts which in turn are supported by strong profit growth already reported.
What follows is a quick review of what we think is relevant.