James Montier, investment strategist, GMO
Investors normally overreact at extremes, James Montier, the value-investing guru who serves on GMO’s asset allocation team, tells Barron’s: they value stocks at “peak multiples on peak earnings and trough multiples on trough earnings”. But this time, it’s different. “Instead of following the collapse in earnings, the market is completely discounting [the risk] and operating as if there is nothing to worry about … and has priced in a V-shaped recovery.”
Yet even if earnings were to rebound, valuations still seem expensive. The economic expansion that ended with the Covid-19 crisis “was the longest but also the weakest economic recovery on record” and stockmarket gains have run ahead of earnings growth. That’s especially true in America, where rising valuations and share buybacks have been responsible for virtually all the superior performance of US stocks over the rest of the world, as Montier noted in a research report before the pandemic arrived in March.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So most assets are making no allowance for the potential risks. Small caps look especially vulnerable to a severe recession, but even larger stocks that have done well so far – ie, big tech – “are probably only relative winners … Google and Facebook … aren’t going to see an increase in advertising revenue, so it’s not clear they win in an absolute sense”. Only emerging markets look cheap enough. “Everybody and their mother hates emerging markets,” which gives you a “much greater margin of safety.”
-
Paying the grandkids’ school fees could generate a shock IHT billPrivate school fees have soared as a result of the government’s VAT policy, meaning more grandparents are helping out – but what are the tax implications?
-
Number of savings deals hits record high – as interest rates slump to two-year lowSavers have more choice than ever when it comes to choosing a savings account or cash ISA. But, the interest rates on offer continue to fall. What’s next for the savings market?
-
AGMs: a unique selling point for investment trusts that investors should capitalise onOpinion Shareholder meetings aren’t just a regulatory requirement – they are a way to communicate with investors
-
A cyclical case for UK stocksOpinion Depressed margins and relatively low valuations mean the UK market could rally strongly as conditions improve, says Cris Sholto Heaton.
-
Infrastructure investing: a haven of stable growth amid market turmoilFrom booming construction in emerging markets to digital and green transitions, the infrastructure sector offers security, returns and long-term opportunities
-
The costly myth of “sell in May”Opinion May 2025's strong returns for US stocks have once again shown that putting too much weight on seasonal patterns will only make investors poorer, says Max King
-
Who’s driving Tesla?As Elon Musk steps back from government with his eyes on the stars, investors ask if he’s still behind the wheel at his electric-car maker.
-
Investment opportunities in the world of Coca-ColaThere is far more to Coca-Cola than just one giant firm. The companies that bottle and distribute the ubiquitous soft drink are promising investments in their own right.
-
Streaming services are the new magic money tree for investors – but for how long?Opinion Streaming services are in full bloom and laden with profits, but beware – winter is coming, warns Matthew Lynn
-
'Pension funds shouldn't be pushed into private equity sector'Opinion The private-equity party is over, so don't push pension funds into the sector, says Merryn Somerset Webb.
