ASR charts the focus in Bloomberg Opinion / John Authers

Beth McCann

28th JUN. 2021

The lesson of 2011: Equities can gain even if P/E multiples retreat in H2

John Authers notes in his Bloomberg Opinion column that “even if price-earnings ratios look extremely high (which they do, particularly in the U.S.), it is plenty possible for share prices to rise even as multiples fall, if profits keep expanding.” 


John features the ASR chart of global equity returns which decomposes growth due to dividends, earnings growth, and multiple expansion.  It illustrates that over the last 12 months, in which global equities have returned 39.7%, widening P/E ratios have accounted for most of the gain. Ian Harnett notes that the experience of 2010-2011, highlighted in the chart, shows that it’s still possible for stock markets to gain in these circumstances. 


The start of that highlighted period was “a messy year filled with gloom over currency debasement, the debt-ceiling row in the U.S., and the beginning of the euro-zone debt crisis; but earnings still grew by enough to counterbalance the fall in multiples, and stocks rose.”  


“A ‘benign compression’ in valuations can happen. If we suffer a liquidity shock or another unexpected blow from the pandemic then valuations make it very hard for stocks to make more progress. But there is a possibility of growth from here… however, Absolute Strategy also breaks down global equity returns since 1975 into earnings and multiple expansion. Differences in earnings in the post-crisis era have determined which markets have won and which have lost, but in the longer term, multiples have been far more influential in driving returns.”


• To read the full column from John Authers, see HERE (Bloomberg subscription may be required). 

• To see ASR’s latest charts and research on multiples, clients please see HERE; to request as part of a trial, please reply HERE