Research Affiliates global growth to be greatly influenced by two factors: the productivity impact of an aging population and the need to deleverage the enormous debts that nations around the world have accumulated. This translates into slower global growth going forward than we’ve experienced historically.
On a Shiller P/E basis—the real price of the index divided by the average real EPS over the previous 10 years—U.S. equities are trading at very high levels compared to history and compared to other countries. RA forecast:
- P/E multiples of U.S. stocks to contract, leading to an expected return even lower than the simple model predicted
- the reverse in other markets that are trading at relatively low Shiller P/E multiples
History is our guide for the future, but RA interpret the historical record in light of the starting conditions.