HQ Trust Analyst: These equity sectors are the most expensively valued

• Tech stocks 2022 biggest detractors
• US tech stocks are not the most expensive industry
• Energy sector rated particularly low

The MSCI ACWI Index gives a good idea of ​​the global stock market and all sectors. ACWI stands for “All Countries World Index”. The index comprises 2,900 of the largest publicly traded companies from 23 developed and 24 emerging countries. In contrast to the MSCI World, it contains not only equities from the industrialized nations, but also from emerging countries such as China, India and South Korea. In the past year, the MSCI ACWI has lost almost 13 percent in value.

Technology stocks were the biggest detractors

Pascal Kielkopf examined the global stock index in terms of its eleven sectors and the four major investment regions of North America, Europe, the Pacific and emerging markets. The result was hardly surprising: “After a long outperformance, shares from North America suffered the most in 2022,” quotes “Institutional Money” from the capital market analysts at HQ Trust. “Due to their high weight, they were also the biggest loss maker for the MSCI ACWI […]. European stocks and paper from the emerging markets each contributed around 1.5 percentage points to the losses, but this is also due to the significantly lower weight of these regions.”

With regard to the various sectors, Kielkopf stated: “Unsurprisingly, the technology stocks, which were still highly weighted at almost 24 percent in the index at the beginning of 2022, contributed most to the ACWI losses. They alone accounted for almost half of the index minus. The declines were comparatively high and corresponding loss contributions from consumer discretionary and communications stocks as well.” The only stocks that notably held back the losses in 2022 were energy stocks.

Which sectors are the most expensive?

Another interesting question for investors is which stocks are the most expensive. To do this, Pascal Kielkopf took a close look at the price-earnings ratios (P/E) in the MSCI ACWI at the end of 2022. Basically, the following applies: the lower this business ratio, which compares the stock market price of a share with the earnings per share, the cheaper the share is. Market participants normally see a stock with a P/E of less than 12 as cheap, but from a P/E of around 25 it is considered rather expensive.

A look at P/E ratios reveals the surprising result that US tech stocks are not the most expensive industry: “Of the three most highly valued industries in the world, none are currently from North America: EM consumer discretionary followed by Pacific healthcare companies and emerging markets are all more expensive,” said Pascal Kielkopf, according to “Institutional Money”. Their P/E ratios are 32.6, 32.2 and 28.2, while the US technology sector only has a P/E ratio of 25.0. Even European tech stocks have a slightly higher valuation than their North American counterparts at 25.6 times earnings.

On the other hand, the energy sector stands out with particularly low valuations: In North America (9.1), in the Pacific region (6.3) and in the emerging markets (7.2) it has the lowest P/E of all eleven sectors. In Europe, only the real estate sector (6.7) had a lower P/E ratio than energy (8.0) at the turn of the year.

The importance of the weight

However, Pascal Kielkopf also emphasizes that it is important to know the background: “Investors should not only look at country or sector P/E ratios, but also pay attention to how the results came about. Individual stocks in certain regional sectors have an enormous Weight. Australia’s Woodside Energy, for example, alone accounts for almost half – 43.5 percent – of Pacific energy companies, so there are often just a few companies that determine valuation of the sector.” Another example: “In what is currently the most expensive regional sector in the world – the cyclical consumer goods manufacturers from the emerging countries – the three Chinese online retailers Alibaba, Meituan and JD.com are almost exclusively responsible for the extraordinarily high valuation.”

Editorial office finanzen.net

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