Equities in the UK

Latest research has revealed British equities to be overvalued from between 48 to 67 per cent.

The findings, undertaken by an independent economic consultancy, will no doubt raise doubts on the recovery of the financial market.

Conducted by Smithers & Co, the report valued shares by calculating the Q ratio (the ratio of the market value of a firm to the replacement cost of everything in the firm). On that gauge, Andrew Smiths (founder of Smithers & Co) discovered share prices to be overvalued by an estimated 67 per cent.

Smithers added that investors in the stock market should expect poor returns in the future due to the overvaluation on current equity.

The report argued that historic returns also indicated an overvaluation on British equities (with the real return on UK stocks for the past thirty years to be 9 per cent) and that the stock market was approximately overvalued by 48 per cent by the end of August 2005.

After experiencing prolonged periods of good returns on UK equities, one must now expect bad results.

Date: 21.09.05