Good morning. From the time we sat down to write this letter to the time we were half way done, martial law was announced and then called off in South Korea. The Korean won fell at first, but promptly recovered most of its losses. Another case of politics not mattering much to markets? Or are investors in South Korea especially prepared for turmoil? Email us: robert.armstrong@ft.com and aiden.reiter@ft.com.

The America bubble, part II

Yesterday I wrote that US stocks were in a bubble, but that the bubble is more likely to expand further than to pop in the foreseeable future. Today, I’ll argue that this is a specifically American bubble, not a bubble in tech stocks that happen to be American. And then I’ll argue that saying “it’s a bubble that is not about to pop” is actually saying something, not just emitting a journalistic noise that has no actionable implications.

On Tuesday, we pointed out that there is a historically large valuation gap between US and European shares, even when the Magnificent 7 big tech stocks are excluded (I’m using Europe as a simple proxy for “cheap global stocks” here; the argument should be transferable). But it is still possible that the value gap between the S&P without the Mag 7 and the S&P Europe 350 is due to different sector weights. The S&P 493 is, for example, 17 per cent tech by market cap; the Europe 350 is just 7.5 per cent tech. This must be part of the explanation of the value gap. Of course if Europe had more large growing tech companies, its stock markets would be worth more. But it’s not all of the explanation. Below are the P/E ratios of the various industrial sectors of the US and European indices. I have treated the Mag 7 as a separate sector to make the comparisons cleaner: