When everything looks expensive, what’s left to buy? The answer may be “megacap” equities. Having been squarely out of favour for years, big stocks have kept pace with their smaller peers so far this year. With fears that the corporate profit cycle may be close to a peak and that buy-out speculation has reached an unsustainable level, it could finally be time for big stocks to outperform.

Megacaps are cheap. The world’s 120 largest companies by market capitalisation, excluding financials, trade at 14 times 2006 earnings, a 15 per cent discount to the next 1,000 or so companies, according to UBS. Four years ago there was no discount.