Maybe it’s the cynic in me, but it’s always easier to find the stuff-ups and missteps – examples of really great Australian management often seem few and far between.raises questions about whether we judge Australia’s corporate sector too hard. He argues the fact that stocks have never been as expensive as they are now in large part reflects the fact that corporates are producing higher quality earnings than they used to.
At the same time as valuations have shot up, the equity risk premium – that is, the compensation an investor gets for owning equities over the risk-free bond yield, for which the 10 year government bond rate is a good proxy – has shrunk, even as interest rates and bond yields have moved higher. Schellbach believes so. Certainly earnings have proved much more resilient to higher interest rates in the current cycle than in the past, and he argues this is because companies have shown they can produce profits that are higher quality and more secure than in the past. He points to three contemporary examples.
Schellbach says investors waiting for valuation to revert to long-run averages may be disappointed. “They don’t deserve to go any higher. But even when they settle, they’ll be settling up levels, which, historically speaking, will look expensive.”