Pimco’s Warning About High Valuations
Pimco, one of the world’s leading asset managers, is currently warning about the high valuations of stocks and sees attractive opportunities in high-quality bonds for investors. The current five-year outlook, authored by Richard Clarida, former vice chairman of the US Federal Reserve, lays the foundation for this assessment.
Current Market Valuation
Stocks as expensive as they have been for decades: According to Pimco, stocks are valued relative to bonds at the highest level seen in about 25 years. The risk premium, or the additional return expectation over lower-risk investments, is at a historic low. Especially US stocks are affected, as the risk is no longer adequately rewarded despite a strong rise in the S&P 500.
Attractiveness of High-Quality Bonds
Bonds offer opportunities: High-quality government bonds are increasingly seen by Pimco as attractive. They offer good return potential with comparatively low risk. It is recommended to orient portfolios more towards high-quality bonds and invest less in overvalued stocks. The PIMCO Euro Short Maturity UCITS ETF, which pays out a monthly dividend, underscores this attractiveness.
Backgrounds and Influencing Factors
Political developments shape markets: The traditional world order has changed; now politics increasingly influences the economy. Geopolitical upheavals increase market uncertainties and make defensive investments like high-quality government bonds more attractive.
Speculative “Trump Trades”: Special caution is advised for speculative dealings with government-backed companies. Pimco warns against hasty speculations, as these could have negative consequences for taxpayers and the mortgage market.
Summary
Pimco’s conclusion is: Stocks are historically expensive, and risk is hardly rewarded. In contrast, high-quality government bonds offer attractive alternatives. A restructuring into more defensive investments could be sensible in light of geopolitical upheavals.