Background and Analysis
Pimco, one of the world’s leading asset managers, is currently warning of a historically high valuation level in stocks. According to analyses by the company, stocks are as expensive relative to bonds as they have been in about 25 years. At the same time, high-quality bonds—especially government bonds—offer attractive return opportunities that, according to Pimco, have been rare over the last few decades.
Current Valuation Situation
- Stock Risk Premium at Historic Low: The so-called stock risk premium is at a historic low, according to Pimco.
- High Valuations: Compared to bonds, stocks are currently valued as highly as they were about 25 years ago.
- Bonds Attractive: High-quality government bonds offer comparatively high and stable returns.
Pimco’s Recommendations
Pimco recommends a reallocation towards high-quality bonds. This is justified by ongoing geopolitical uncertainties and an increasing dominance of political decisions over economic developments, especially in the USA.
Political Influencing Factors
- Geopolitical Upheavals: The current market situation is strongly influenced by political developments.
- USA in Focus: Particularly relevant is the second term of President Trump as well as potential changes in state-sponsored enterprises.
- Stability vs. Speculation: Pimco warns against speculative “Trump trades” and advocates for maintaining existing structures.
Conclusion
Pimco recommends that investors increasingly focus on high-quality bonds given the current market valuations. These offer a combination of high security and attractive returns, a rare opportunity for portfolio reallocation. Investors should also hedge against political risks.
“In short: Take advantage of the yield advantage of high-quality bonds now instead of continuing to chase expensive stocks.” — Richard Clarida (Global Economic Advisor at PIMCO)