How Can You Tell if a Market is Overvalued?

Do valuation metrics work in this new new world of abnormal interest rates and an ageing population? Dan Kemp investigates how to tell if a stock is good value

Dan Kemp 25 July, 2017 | 10:17AM
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What constitutes value investing in this new world of abnormal interest rates and an ageing population? Some investors justify the higher asset prices in the short term on the basis that the paradigm has shifted – including prominent investors such as Jeremy Grantham – while others remain steadfastly wedded to traditional valuation metrics which look increasingly stretched.

While the debate is healthy, it is important to remain focused on how excessive valuations may be.

There are literally hundreds of ways to approach this, yet regardless of the chosen approach one should remain firmly grounded in the fundamental drivers of returns and reminded by the cyclicality of markets.

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About Author

Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA