global economy

Who is more expensive? Global stock market, bond market or real estate?

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The unprecedented policy stimulus after the outbreak of the epidemic has both contributed to the general inflation of assets and the market’s concern about asset bubbles. In particular, the global bond market has seen a sell-off this year. Not only has the bubble of the bond market spawned by the central bank has been squeezed out, but the rise of the bond interest rate also poses a risk to the high valuation of the stock market and real estate. From the current point of view, how expensive are the global bond market, stock market and real estate? We might as well compete.

According to the latest data (Figure 1), the current market value of global stock market and bond market are US $109 trillion and US $123 trillion respectively. Although both are historical highs, they are dwarfed by the market value of global real estate of US $269 trillion at the end of 2020. Compared with the market value at the end of 2010, the global stock market and bond market have increased by 150% and 110%, and the global real estate market has increased by 77%.

What is the concept? In 2020, the scale of global GDP is about 84 trillion US dollars, so the market value of global stock market and bond market is equivalent to 1.2 and 1.4 times of global GDP, and the market value of global real estate is 3.2 times of global GDP (Figure 2)! At the end of 2010, ten years ago, the market values of global stock market, bond market and real estate were 0.8 times, 0.7 times and 2.3 times of global GDP respectively.

It can be seen that compared with the global economic fundamentals, the scale of the above three types of assets has expanded significantly in the past decade. However, their respective expensive degrees are not the same.

For the global bond market, real long-term interest rate and negative interest rate bond scale are two important reference indicators. As shown in Figure 3-4, the negative real interest rate of long-term treasury bonds in major developed countries is still at a historical low, and the global scale of negative interest rate bonds is still at a historical high. In view of the fact that the global economy is coming out of the epidemic and the inflation pressure is gradually emerging, we expect that the real interest rate of long-term bonds in developed countries will get rid of the historical low, and the issuance of negative interest rate bonds will also be significantly reduced. This shows that the current global bond valuation is still too high in general.

Compared with the global bond market, the valuation of global stock market is not expensive. Let’s take the U.S. stocks with high valuations in the global stock market as an example. As shown in Figure 5, the profit yield implied by the current dynamic P / E ratio of the S & P 500 index is 4.4%, which is far higher than the 10-year U.S. bond interest rate near 1.7%. This is completely different from the collapse of the US stock Internet bubble in early twenty-first Century, when the S & P 500 index had a significantly lower yield than the 10 year US bond interest rate. As a result, U.S. stocks remain attractive to U.S. bonds until the interest rate of 10-year U.S. bonds rises to the profitability of the S & P 500 index.

Although the global real estate market value is the largest, there is still room for appreciation. Our previous analysis has shown that although global house prices have repeatedly reached new highs in recent years, the house price income ratio of the world and the United States has not returned to the peak of the last round of real estate boom, and there is room for further increase in the house price rent ratio of the world and the United States (figures 6-7). According to the latest forecast of tbrc, the market value of global real estate is expected to increase by 3.2% to 277 trillion US dollars in 2021. The continuous rise of housing prices in major countries will eventually lead to the rise of rent, thus increasing the pressure of CPI inflation.

Based on the above analysis, it is not difficult to draw the following conclusions

First, the global bond market is more expensive than the stock market and real estate. Especially with the global out of the epidemic, the real interest rate of long-term debt in developed countries is expected to converge to the level before the epidemic.

Second, the rise of bond interest rate in the short term does not pose a threat to the rise of global stock market. This is mainly because the yield of long-term bonds is still significantly higher than that of national bonds.

Third, compared with bonds and stock markets, the wealth effect of global real estate is the most significant. This means that the impact of the real estate adjustment on the economy is more significant than that of the stock market and bond market. Therefore, once the real estate market falls due to the rise of bond interest rate, the main central banks represented by the Federal Reserve will not stand by, which also means that the upward space of long-term bond interest rate in the future is limited.

The Federal Reserve and China triggered a global sell-off in the stock market, bond market and commodity crash. A list of “Black Monday” declines in global stock markets in August 2015 Global & Baml: global stock market shrank by US $10 trillion in the third quarter of 2015 PwC: emerging trends of Asia Pacific Real estate market in 2021 report 58 anjuke Real Estate Research Institute: analysis of Malaysia’s real estate market in 2019 Suesse: 2016 Swiss Real Estate Market Research Report (with download) Ipsos: survey shows that 58% of the world’s population can’t afford a house Jones Lang LaSalle: 2017 Q3 Guangzhou real estate market review (with download) 2018-2019 us student housing real estate trusts (REITs) analysis report CF40: the third quarter of 2019 macro policy report – macro economics of real estate (with download) PwC: mid-term review of China’s real estate M & a market in 2017 influence in 2019: future of global real estate market

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