Valuations compared with profits are rising. This year’s 5.4 percent advance in the MSCI World has left the gauge trading at 13.8 times its members’ estimated annual earnings, near the highest since December 2010, Bloomberg data show.

Spending Cuts

Concern over the strength of the global economy, U.S. budget negotiations and elections in Europe may trigger investor flight, according to Mike Turner, head of global strategy and asset allocation at Aberdeen Asset Management Plc in London.

U.S. lawmakers must reach a deal by March 1 to stop a package of automatic federal spending cuts that may slow growth in the world’s largest economy. In the run-up to Italian elections Feb. 24-25, Silvio Berlusconi, who has pledged to roll back Prime Minister Mario Monti’s austerity policies, narrowed the lead of front-runner Pier Luigi Bersani to within the 4 percentage-point margin of error in an opinion poll published Feb. 6. Germans may go to the polls in September.

“The uncertain macro environment will prevent a massive rotation out of bonds and into equities,” said Turner, whose firm oversees $314 billion. “There’s a natural affinity to own equities just from an income advantage, but ultimately you are unlikely to have major damage in the bond market because keeping rates extremely low is a key point in monetary policy.”

Dividend Forecasts

Dividends are poised to climb to the highest levels since at least 1998. Companies in the MSCI World will boost payments by 3.8 percent to a combined $39.43 a share this year, up from a low of $29.58 in 2009, according to more than 5,000 analyst estimates compiled by Bloomberg.

Investors withdrew more than $600 billion from equity mutual funds between 2007 and 2012 and added $1.1 trillion to bond funds, according to the Investment Company Institute in Washington. Now, investors are returning, based on data from Cambridge, Massachusetts-based research company EPFR Global. U.S.-domiciled stock funds attracted a net $57.4 billion in January, the best month since at least 1995. Bond funds had inflows of $20.7 billion, the lowest since December 2011.

The gap between the Barclays Global High-Yield Index’s yield and the MSCI World’s payouts narrowed to 3.4 percentage points last week from 17.1 at the height of the financial crisis in 2008, according to Bloomberg data. The 3 percent spread in January was the smallest on record.

Comparative Returns