Moody's: Higher Equity Prices and Lower Bond Yields Drive Rise in Moody's Global Asset Price Index

Global asset prices continued to pick up in the third quarter as equity markets rose in nearly all countries and declining bond yields boosted prices in most sovereign bond markets, Moody's Investors Service said in a quarterly report.

Moody's Global Asset Price Monitor Q3 2016 report, which analyses price trends in equities, bond markets, property, foreign exchange and private credit, found that asset prices are at elevated levels in advanced economies (AEs), while emerging market (EM) prices show fewer signs of overheating.

"Equity markets advanced in virtually all countries we track during the third quarter, but are still below their 10-year averages when the data is adjusted for nominal GDP growth," said Rahul Ghosh, a Moody's Vice President -- Senior Credit Officer and the report's co-author. "Bond prices in advanced economies are elevated across the board, while many emerging markets are also benefitting from strong investor demand."

Advanced economies' equity markets are looking more expensive than those in emerging markets. Elevated equity indices, accompanied by high price-to-earnings ratios, point to risks of asset price corrections in the United States, Denmark and Sweden.

In three-quarters of the global bond markets that the Moody's monitor tracks, yields were at least one standard deviation below their 10-year average, compared to two-thirds in the previous quarter. Real yields - calculated as the sovereign yield less consumer price inflation - are near post-crisis lows in AEs, but remain at around 10-year average levels in EMs.

House prices to GDP were high in Norway, Sweden and, to a lesser extent, Austria, Germany and Australia. In EMs, prices were high in Turkey and showed some elevation in Malaysia in relation to income.

Safe haven currencies, including the US Dollar, Swiss Franc and Singapore Dollar, remain elevated based on 10-year averages, while most EM currencies appear undervalued by the same metric.

The British pound was a significant underperformer as political uncertainty following the UK's vote to leave the European Union and monetary easing weighed heavily on the currency.

Mexico, Argentina and China recorded the strongest pick-up in private credit to income from a year ago. China's credit boom stands out amongst EM economies in terms of both its rate of growth and when compared to income levels.

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