"Shane Oliver of AMP Capital Investors has calculated that the average P/E ratio is still below the 10-year average 15.1 which, because the higher this is the more expensive the market is, means your average share is a bit undervalued. Yes, even with record prices.
That's because surging profits in the past few years have left the market for dead. Share prices just haven't kept up, as hard as they've tried. Mind you, when everybody agrees that things are only getting better it's best to take a reality check.
The mainstay of corporate profits is the commodity boom, though there can be a few degrees of separation as the benefits pass down the corporate food chain.
Certainly there's no sign of trouble here. On the contrary, the big rises in coal and iron ore prices are only just coming through.
And if you think resource stocks must have got as high as they can get, Oliver has news for you they're trading on lower P/Es than the rest of the market.
There's also an investment boom under way, another tick. Although GDP grew at a sedate 2.6 per cent in the June quarter, that disguised an almost threefold improvement in six months. Over the quarter growth was 1.3 per cent, compared with 0.5 per cent in the previous quarter."
