One common concern that many investors have about shares at present is the higher than normal multiples they trade on.
This has sparked fears that certain shares may be overvalued and that a meaningful pullback could be coming or future returns will underwhelm.
However, one leading equity strategist believes that these higher valuations will dominate the next decade.
According to Credit Suisse's chief U.S, equity strategist, Jonathan Golub, courtesy of the AFR, he sees no reason to be concerned with the fact that U.S. shares are trading at an average price to earnings multiple of 22.2 times at present. Even though historically this would suggest that future returns will be below zero over the next decade.
In fact, he suspects these multiples could yet go higher from here. He commented: "My personal expectation is that we will see stock multiples in the mid-20s in the US for the next decade ahead."
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Why will multiples go higher?
The equity strategist believes multiples will go higher due to ultra low interest rates. He notes that the current U.S. corporate bond yield of 3.3% implies a price to earnings multiple of 30.6 times.
Mr Golub added: "We never had in the past interest rates that have been this low, both in terms of the spread and the 30-year bond yield and the 10-year bond yield. The more cash you have in a slower-growing world, the more your assets are worth."
But where should you invest? Mr Golub believes that "growth and technology will win versus value and old economy."
This could be good news for the shareholders of growth and tech shares such as A2 Milk Company Ltd (ASX: A2M), Appen Ltd (ASX: APX), Altium Limited (ASX: ALU), and Kogan.com Ltd (ASX: KGN).
At present, investors are paying 27x, 37x, 58x, and 42x estimated FY 2021 earnings, respectively. While this might look expensive on paper, given the above and their positive long term growth outlooks respective to the market average, they could yet prove to be great value growth options.
