NOTE: I will be releasing European market valuations shortly. I will now be

China Shenzhen Walmart-entrance

able to do it on a monthly basis like I do with my US stock market valuation articles (this month it will be super late). Below are some numbers from GMO:

At the bottom of this article is a chart containing GMO’s seven-year forecasts for a variety of asset classes. Comparing these numbers to prior months, one can see a clear trend: as valuations have gone down, GMO now is increasingly bullish. They expect international high-quality emerging markets and U.S. high-quality to have near historic real returns of 6.0%. CAPE above 20 indicates returns will be closer to 2% for the S&P500, which is close to GMO’s estimate of 1.8% of large cap US stocks. John Bogle recently stated that investors should expect real returns of 1-2%.

Besides emerging markets, bonds are expected to have negative returns.

Jeremy Grantham describes what GMO means by high-quality U.S. stocks in an interview with Morningstar: “It’s high return, stable return and low debt.” And, “Quality is quality; we kind of know what it is. It’s a great franchise company.” However, no exact metrics have been stated.

I assume they (GMO/Grantham) are referring to blue chip stocks, with strong balance sheets and high dividends, stocks such as Coke (KO), Proctor & Gamble (PG), Johnson & Johnson (JNJ) and other Dow components that have pricing power. However, I have never seen the exact criteria for what qualifies as high quality.

Below are the top 10 holdings from GMO’s Quality mutual fund, which likely would give the best quantitative definition of high quality:

Below are the top 10 holdings from GMO’s Quality mutual fund, which likely would give the best quantitative definition of high quality:

Top 10 holdings

Security Net Assets
Microsoft Corporation (MSFT) 5.78%
Johnson & Johnson (JNJ) 5.74%
Cisco Systems Inc (CSCO) 5.15%
Philip Morris International, Inc. (PM) 4.89%
The Coca-Cola Co (KO) 4.37%
Oracle Corporation (ORCL) 4.31%
Pfizer Inc (PFE) 4.02%
Apple, Inc. (AAPL) 3.72%
Wal-Mart Stores Inc (WMT) 3.38%
Google, Inc. (GOOG) 3.21%

GMO’s forecast from last month-http://www.valuewalk.com/2011/11/gmo-bullish-asset-classes/

GMO paper

 

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