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Fears delta will derail equity markets overblown, expert says
The equity markets still have a long way to run, despite higher valuations, rising inflation, the potential weakening of economies and trade tensions between nations, an industry expert has said.
Fears delta will derail equity markets overblown, expert says
The equity markets still have a long way to run, despite higher valuations, rising inflation, the potential weakening of economies and trade tensions between nations, an industry expert has said.
Despite rising fears of a potential pull back or market bubble, BetaShare’s economist, David Bassanese, used his latest webinar to explain why an immediate market downturn is unlikely.
In fact, he pointed to many share analysts who are actually upgrading share price values in the United States as the earnings season surprises investors on the upside.
“The Q2 earning season was the strongest on record, with something like 80 to 90 per cent of companies beating expectations compared to a long-run average of 75 per cent,” Mr Bassanese explained.
The economist highlighted that the big picture reveals steady interest rates and valuations, with earnings set to continue to push the market higher.
“People say it’s all interest rates and reserve banks,” he said.
“Earnings have rebounded very strongly on the back of a V-shaped recovery, both globally and in Australia, so this is a fundamental driver of the markets since late last year.”
Despite the strong growth both here and abroad, Mr Bassanese did note Australia’s valuations are becoming rather stretched as markets anticipate downward pressures on resources companies.
But when asked about the possibility of 10 per cent market correction, Mr Bassanese said, “I don’t see a strong case for a correction anytime soon.”
Flagging potential risks to the market, including the new COVID delta variant, US inflation and trade tensions with China, Mr Bassanese opined these are all unlikely in the short term. He did, however, warn of the dangers of rising bond yields.
“I don’t see tapering [of monetary support] having a 10 per cent pull back, but it may cause a 3 to 5 per cent pull back.
“Historically, when the Fed starts raising interest rates, markets have had a correction, but at the moment that is not looking likely,” he said.
In stark contrast, while Mr Bassanese pointed to the strengths of markets, Schroder Liam Nunn is confident that this market cycle is similar to the dotcom crash.
The dotcom crash, or the rise and fall of technology stocks between 1995 and 2001, saw the growth of internet-crazed stocks, with investors pouring money into businesses with no track record of profits.
Fast forward two decades, Mr Nunn explained in a separate webinar that the same sense of ‘crazy’ euphoria that sparked the tech bubble can currently be witnessed.
“Personally, I think [the market] is more similar to the tech bubble than people would like to acknowledge,” he said.
Drawing a parallel between 1999-2000 and today, the investor highlighted the same ‘circus sideshow’ where investors were still in the peak buying phase, prior to the bubble popping.
“It’s not impossible to say the same thing could be happening today. We are not short of circus sideshow craziness to rival the Pets.com of 1999-2000.
“You’ve got cryptocurrency mania left, right and centre; you’ve got the Reddit retail trading phenomenon, and you have Tesla at something crazy that is larger than the entire global automotive industry,” he said.
“I don’t think we are short of any of the craziness of the tech bubble,” Mr Nunn concluded.
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