Stock markets ‘overvalued by 10%’

Developed market share prices are looking expensive, according most strategists and brokers, with a majority in a global Reuters poll saying those major indices are due for a correction of 10% or more this year.

Stockmarkets everywhere have rallied so far in 2017, with Wall Street hitting record highs on hopes that the US administration will usher in financial deregulation and sweeping tax cuts.

However, the blistering rally stands in contrast to much more measured views from global fund managers, who have trimmed recommendations for equities or left them unchanged at best.

Many are now arguing that markets have become too reluctant to consider several key risks, including potentially-disruptive elections in Europe and no guarantees that the US stimulus plans will be put into action.

Julian Emanuel, executive director of US equity and derivatives strategy at UBS Securities in New York, said stocks have been pricing in a “strongly” pro-growth agenda.

“But it has yet to be fully implemented, and the devil is in the details,” said Emanuel. Still, views from more than 200 equity strategists and brokers around the world were bullish, with the outlook for almost all the 22 indices upgraded from just three months ago, when almost everyone missed the size of the recent rally.

Most indices have already surpassed the levels predicted in December for where they would trade by mid-2017 and many have even breached end-2017 forecasts made three months ago. However, while the general view is for stock- markets to keep rising, corporate earnings now have to catch up to justify the surge in share prices.