Florence Barjou, deputy chief investment officer at Lyxor Asset Management, said on Bloomberg, “If you look at broad indices, just taking into account the impact of interest rates you know we’re talking about valuations being expensive but it really depends how you discount them.
If you discount longer-term valuations by the long-term growth rate of the U.S. economy, it looks as though the S&P 500 is overvalued by around 40 percent. However, if you use current interest rates which are really low, in fact in terms of overvaluation you’re just back to about four percent overvalued. So that gives you a macro picture on the fact that valuations today, with rates being so low, it doesn’t mean much.
With interest rates so low, it’s very difficult to measure valuations relative to the bond market.
The technology sector though is a different story. There are fundamental reasons why tech has been uptrending. If you take a broader picture, you do have trends towards digitization which will likely remain with us. If you look at earnings growth in fact it’s quite supportive and when you look at their balance sheet structure compared to other segments of the markets these are corporates which have a very sound and robust balanced structure with a lot of cash and that does make a difference in an environment where debt ratios across the corporate world are rising and winter and autumn we are going to see default rates rise.”
Positive earnings growth, robust balance sheet structures and the trend toward digital transformation will continue to buoy technology stocks, even amid lofty valuations, according to Florence Barjou, deputy chief investment officer at Lyxor Asset Management. With interest rates so low, “valuations don’t mean much,” she said in an interview on “Bloomberg Markets: European Open.”