Over the past 30 years, there has been a strong a correlation between equity and bond valuations. Th...
Over the past 30 years, there has been a strong a correlation between equity and bond valuations. This relationship appears to have broken down around the time when the technology, media and telecoms (TMT) bubble burst. Since then, we have seen a sharp de-rating of risky equity investments while apparently risk free bonds carried on being re-rated. Earnings per share growth in the UK has gone from 7.3% in 2000 to 14.5% in 2003, 16.5% in 2004 and 10% in 2005, yet the market is on a prospective price-earnings ratio (P/E) of 12x to 13x to the end of 2007. This compares with a prospective P/E ...
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