Listen to Episode 527
In this week's podcast we take a look at stock market 'value' around the globe before revealing which sectors within the US stock market are expensive and which are cheap. We also explain how a major overhaul of a leading credit reference agency’s scoring system will result in 44% of people experiencing a drop in their credit rating. Finally, I discuss new research that highlights how using Buy Now Pay Later services could harm your chances of getting a mortgage.
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Episode 527 Podcast Summary
How to find value in the stock market
Summary
Amid fears that AI hype has created a stock market bubble, I review global stock market valuations using the Shiller CAPE ratio. I explore which markets, from Turkey to China, have become cheaper or more expensive since June 2024. I also identify specific US sectors, like healthcare, that appear undervalued compared to the extremely expensive technology sector, offering potential alternatives for investors.
Key insights
- AI Bubble Fears: The US technology sector's CAPE ratio is 65.1, nearly double its 10-year average (32.8), driven by AI hype and causing concern for the IMF and Bank of England.
- Global Valuations: The US remains the most expensive market. Turkey is now the cheapest, while China, despite a strong rally, still trades below its historical median value.
- Market Flips: Germany and South Africa have flipped from being historically cheap in June 2024 to slightly expensive now.
- Emerging Markets: As a group, emerging markets are now trading at a premium to their historical median, having been fairly valued in June 2024.
- US Sector Value: The healthcare sector has moved from overvalued to undervalued (CAPE 27.6 vs. avg 28.5). Communication services and real estate also remain cheap
Experian Score Change & BNPL Mortgage Warning
Summary
Andy explains a major change to the Experian credit scoring system. The score range is moving from 0-999 to 0-1250 to better incorporate positive behaviours like paying rent on time. We explain what this means for you and why 44% of people are expected to drop a band. I then highlight new research showing the serious risk of using Buy Now Pay Later (BNPL) services when applying for a mortgage, with 67% of brokers reporting it has contributed to rejections.
Key insights
- Experian's New Score: Experian is changing its score range, increasing it from 0-999 to 0-1250 range. It is being rolled out from November.
- Reason for Change: The new "smarter" system is designed to make room for positive factors, such as regular rental payments and reduced overdraft use.
- Impact on Users: An estimated 44% of people will drop down a band, while 42% will move up. The negative names for bands (e.g., "Poor") are also being removed.
- BNPL Causes Rejections: New research from AMI reveals 67% of mortgage brokers said BNPL use had played a part in or directly caused a mortgage rejection.
- Higher Rates: 27% of brokers stated that BNPL use had caused a client to be placed on a higher mortgage interest rate.
- The Risk: Lenders are using BNPL history on credit reports to judge responsible credit management. Even perfect credit scores have been declined by high street lenders due to BNPL use
Episode quiz
1. What potential cap on salary sacrifice pension contributions has been rumored?
a) £2,000
b) £5,000
c) £10,000
d) £20,000
2. What valuation measure did I refer to when assessing stock markets?
a) P/E Ratio
b) Price-to-Book
c) Shiller PE (CAPE)
d) Dividend Yield
3. The idea that markets revert to their historic median is called what?
a) Momentum investing
b) Mean reversion
c) Market efficiency
d) Value trap
4. Which credit reference agency is changing its scoring system?
a) Transunion
b) Equifax
c) Experian
d) CreditLadder
5. According to AMI research, what percentage of brokers said BNPL use contributed to a mortgage rejection?
a) 27%
b) 44%
c) 62%
d) 67%
Answers
- a) £2,000
- c) Shiller PE (CAPE)
- b) Mean reversion
- c) Experian
- d) 67%
Resources
Links referred to in the podcast:
- Sign Up To The MTTM Weekly Newsletter
- Get a FREE TRIAL of 80-20 Investor
- Check out our latest Budget Predictions
- How to check your credit report for free
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