“Sentiment has certainly swung aggressively from fear to hope and while there are a number of reasons to argue that the good time for equities might roll-on for a while yet, including rising inflation flushing cash into riskier assets, a possible pick-up in company share buybacks and a boost to UK dividends from overseas earnings being converted into weaker pounds, there are also clear risks in getting swept up by market euphoria.”
The problem is that, while there are clear reasons to be hopeful that things can go higher from here, partly as a result of quantitative easing, the risks and rewards in a number of areas of the market, particularly the US are becoming asymmetric.
As Société Générale pointed out at the beginning of his presentation on Wednesday, while valuation, in general terms is a very poor guide from a market timing point of view, when valuations are high, future returns are low, and valuations, particularly in the US are pretty hefty.
At times like these investors are often well served by reminding themselves of that well-remarked-upon investment maxim, buy low and sell high. There are undoubtedly opportunities to be found within the current market, and there is almost certainly going to volatility this year, but there are also a great deal of assets priced for perfection, and it is unlikely that 2017 will be perfect.
