Hong Hon, Manager, Global Equities, Lonsec Research and Ratings
As we head into the back half of 2025, global equities are once again pushing the limits on valuations.
Still, investor sentiment is holding up, thanks to solid corporate earnings and the ongoing buzz around tech innovation. That has helped drive a sharp rebound in equity prices, especially in the US, where growth stocks have bounced back strongly after a brief dip earlier this year due to tariff concerns.
Outside of the US is a bit of a different story. Value stocks in Europe and Asia have outperformed growth stocks over the past one, three and five years.
It’s a good reminder that diversification across regions and investment styles really matters. While US tech valuations remain pretty stretched, many overseas markets have already seen their big valuation reset. Value and dividend stocks aren’t as cheap as they used to be and growth stocks aren’t as pricey, so a more balanced approach might make sense from here.
US tech giants, however, continue to dominate the global equity landscape. To put into perspective – the top ten US tech firms now make up about a third of the US market cap and one-sixth of the global market cap. Their valuations – fueled by AI enthusiasm and strong earnings, have sparked some debate about whether we’re heading into dot-com territory again.
Digging deeper, some smaller AI-focused companies are trading at sky-high multiples – with P/E ratios above 600 times, but the big names like Google and Microsoft are still relatively grounded. Analysts say their current valuation could be justified if earnings growth, especially from AI, cloud and digital ads, remain strong.
That said, the concentration risk is real. With nearly two-thirds of global equity value tied to the US, any major disruption – whether regulatory, tech-related or macroeconomic, could ripple across markets worldwide.
Historically, high valuations often preceded market corrections, but they’re rarely the only trigger. Past downturns have usually been caused by a mix of factors, such as:
- Geopolitical shocks – Think the 1973-74 oil embargo
- Policy missteps – Like the 2007-09 Global Financial Crisis
- Pandemics and inflation – As seen in the 2020 and 2022 bear markets
In fact, only about half of bear markets since 1928 have happened during recessions. The rest were driven by shifts in sentiment, external shocks or structural issues. So, it’s important to look beyond just valuations when assessing risk.
Right now, while valuations remain elevated, especially in US tech, the timing of the next bear market is uncertain. Earnings growth remains solid and attractive opportunities still exist globally, especially in sectors and regions that look relatively undervalued.
The bottom line – it’s worth staying disciplined. While valuations matter, they’re just one piece of a much bigger puzzle.
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