Saxo Bank (Saxo Bank)
Markets  |  November 15, 2012 11:13:55

Shares (or not) they are dead


Shares in the U.S. for the past 12 years has not brought anything. Quality bonds while in recent years proved to be a good choice. But what to expect from these two asset classes in the future? What is the valuation?

UK pension funds hold first time since the '50s more bonds than stocks. For some, this is confirmation that the investments generating regular passive income investors are starting to prefer. But the past does not matter to me, my point about the future.

Many investors are beginning to agree that stocks are too risky, while bonds proved to be a solid investment instrument. For the past 12 years, stocks do not make anything. From 2000 until today the S & P500 lost 3 percent, while bonds are experiencing one of the greatest bull markets. But let's go back and look at the data.

In 2000, the S & P500 traded with the future P / E of about 23-24, while today the S & P500 profits are valued at a future P / E around 12.5. You could say that we are at half value compared to 2000.

If we look at bonds, especially long-term AAA corporate yields bonds declined over the same period from 7.5 to 3.4 percent. In 2000, the stock return of about 4 percent (calculated according to P / E = 1/24 * 100) vs. AAA bond yields, which amounted to 7.5 percent. At that time, the bonds seemed like a better investment than stocks. They were very overstated, while the bonds bear good gains. Let's look at it now. Proceeds of long-term AAA corporate bonds versus shares traded with a yield of 8 percent gains. (1 / P/E12, 5 * 100).

Let's take an example. Microsoft, awarded AAA, recently issued new bonds: to 5 years for 0.875 percent, to 10 years for 2125 percent, to 30 years for 3.5 percent. You can buy his stock with a P / E of about 10 and dividend yield 3 percent, or 10-year bond with a yield of 2 percent. Bond really does not make anything due to inflation, which is approximately at the same level. There are opinions that Microsoft's bonds are less risky than stocks because their interest rates have a minimal down. But if you think that the future of the company is questionable, then you probably should not invest in its bonds.

Perhaps that investors do not love Microsoft. Its profits may fail. That, as we all know, it was no wonder. I have a solution for this. Take all companies with a AAA credit rating, buy the shares of all of them and it is likely that this basket of shares in 10 years will bring more profits than investments in investment-grade bonds.

To earn 2 percent to cart AAA corporate bonds? Or do you want to take a relatively small risk of losing money due to the current valuation of the shares in exchange for a very decent profits? If you think that the risk is too high, put it into perspective. In the past 12 years we have been through valuační contractions less than 50 percent and a massive bust, yet shares undergone a de facto nothing.

So the bonds will remain more powerful? No. And it's "cult stock" really dead? No. Maybe it will not happen next year or in five years, but I expect a giant crash the bond market, which leaves a lot of retirees with the question of what happened to their pensions.Many just buy bonds right pension or mutual funds.

And what about stocks? I really have no idea. No one knows how the market is to judge, but I'll trust your common sense and always I prefer to share three percent yield and P / E 10 before the ten-year bond with a yield of 2 percent.

Matt Bolduc, Equities Analyst, Saxo Bank

 Globální online investiční banka

Saxo Bank je globální investiční banka specializující se na online obchodování a investice na mezinárodních finančních trzích. Saxo Bank umožňuje soukromým investorům a institucionálním klientům obchodovat s FX, CFD, cennými papíry, futures, opcemi a dalšími deriváty a poskytuje i profesionální správu portfolia a fondů díky svým online obchodním platformám oceněným řadou různých ocenění.

Více informací na: www.saxobank.cz

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