With the US stock markets up near all time highs and the ASX back above 5,500 it is easy to be bearish on stocks.
I myself moved to cash a month or so back.
But this chart from Craig James, CommSec’s Chief Economist, suggests that Australian stocks are far from overvalued at these levels by historical standards.
The current price to earnings ratio (PE) — which represents a company’s share price divided by it’s earning over the past 12 months and is a proxy for whether shares are viewed as cheap or expensive — suggests that for all the debate about the overvaluation of stocks in the US, Australian shares are not over valued by this measure.
The market will decide in time but this offers the true believers support that Australian stocks will run higher over the course of 2014 and any dips might just find fundamental support.
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