Record equity valuations, container rates, Snowflake earnings Record equity valuations, container rates, Snowflake earnings Record equity valuations, container rates, Snowflake earnings

Record equity valuations, container rates, Snowflake earnings

Equities 7 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  Equity valuations have hit highest levels since the 1960s which in itself is scary. On a forward basis, equity valuations are also suggesting investors are willing to pay high prices for equities. But everything should be viewed in relative terms and with US 10-year yield at historically low levels the current equity valuations do not look as stretched as one would think. We also take a look at the surging container rates and food prices indicating inflationary pressures. Finally, we comment on yesterday's Snowflake earnings dividing Wall Street analysts.

Global equities had its best month November going back many decades. Surging equities and the implosion in earnings in the first half of the year has pushed the 12-month trailing EV/EBITDA ratio to the highest level measured since this ratio was available for the MSCI World Index in January 1995. We know equity valuations were low during the high inflation years of the 1970s and 1980s and that the dot-com bubble in 2000 marked the high on equity valuation. As a result, we think it is fair to say equities are the most expensive since the go-go years of the 1960s bull market.

Source: Bloomberg

While the trailing valuation ratios show a disturbing level, they do not represent what is relevant for equities. The 12-month forward EV/EBITDA ratio reflect the expected rebound in corporate profitability in 2021, but even on this measure the global equity is beginning to look stretched with highest valuation level since 2005 when forward looking measure on MSCI World is available. Should you be worried as an investor and sell your entire equity portfolio?

Valuations reflect investors willingness to pay for income streams. One of the key input variables is the discount rate which is essentially the risk-free rate plus a premium that considers associated risks related to equities. The US 10-year yield is still below 1% which is significantly below the 6-7% in the years 1995-96. When we compare current equity valuations to the dot-com years we must consider the alternative risk-free option. Back in 2000, an investor could lock in around 6% risk-free yield over ten years against buying equities at the highest level since the 1960s. The risk-reward ratio was bad for equities. Today, an investor pays 13x next year’s EBITDA which is roughly an operating income yield of 7.7%. If we use the free cash flow yield it is currently 5.9% on the MSCI World Index. Compared against 1% in the US 10-year yield the risk-reward ratio still looks attractive despite high equity valuations. When government bond yields are historically low we should also expect equity valuations to be historically high.

Source: Bloomberg

On our daily morning podcast, we have been highlighting the rapidly rising global container benchmark rates. Our Head of Commodity Strategy, Ole S. Hansen, has created the charts below of the four main container benchmark rates and they all show significant levels compared to the 5-year average range. Especially European container rates have accelerated a lot the past couple of months reflecting the strong retail sales figures. While logistics costs are only around 10% of overall costs these significantly higher shipping rates do contribute to inflationary pressures. The UN FAO Food Index is also out today showing more pressure in November which we analyse in today’s Food inflation ran wild in November.

Snowflake Q3 earnings have Wall Street analysts divided

One of the hottest IPOs this year was the Snowflake IPO which wrote about in September in our analysis Snowflake enters equity market with red hot valuation. Last night the company released its first earnings release and numbers were strong. Q3 revenue was $159.6mn vs est. $147.1mn and guided FY21 (ending in January 2021) product revenue of $538-543mn and Q4 revenue of $162-167mn which disappointed analysts and investors as it only translate into q/q product revenue growth of around 11%. We are guessing that the market is surprised about this number as it suggests a faster growth decay than were most analysts had expected. Most analysts have Snowflake shares at hold with a consensus price target of $293. On the positive note, customer commitments continued to rise rapidly in Q3 FY21 suggesting high revenue growth in the future is intact.

Source: Snowflake

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited holds a Type 1 Regulated Activity (Dealing in securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged foreign exchange trading); Type 4 Regulated Activity (Advising on securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.