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On this episode of The nestegg Podcast, host Maja Garaca Djurdjevic and three experts discuss the latest in equities, property investing and super.

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Steve Waters, director of Right Property Group, chats about the latest in property, including the much-talked-about use of macro-prudential measures to cool the rapidly expanding market.

RMIT’s senior lecturer of finance, Dr Angel Zhong, talks about soaring ETFs, what they are and why young investors, in particular, are jumping onboard their latest surge. Dr Zhong also takes a closer look at BNPL platforms.

And lastly, tax and super guru Timothy Munro gives his thoughts on Prime Minister Scott Morrison’s choice to backtrack on any further SG changes and looks at the impending end of the low and middle income tax offset.

Have a question for our experts? Get in touch at [email protected] and you might get featured on the next episode.

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Are equity markets becoming a giant Ponzi scheme?

By Cameron Micallef

February 03 2020
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Invest

Are equity markets becoming a giant Ponzi scheme?

By Cameron Micallef
February 03 2020

Around the world, falling interest rates are forcing investors to move their money towards riskier assets, creating a “giant Ponzi scheme”, suggests a fund manager.

Are equity markets becoming a giant Ponzi scheme?

By Cameron Micallef

February 03 2020
Share

Around the world, falling interest rates are forcing investors to move their money towards riskier assets, creating a “giant Ponzi scheme”, suggests a fund manager.

During a media briefing, Schroders head of fixed income and multi-assets Simon Doyle stated 2019 was “pretty much an interest rate story”.

“One of the key issues at the moment is asset prices. Even the Federal Reserve acknowledged in their words, asset valuations are somewhat elevated, which is quite telling,” Mr Doyle said.

While acknowledging it is too soon to talk about the impact of the coronavirus on markets, Mr Doyle believes it highlights the problems markets have in a low interest environment.

“This is the problem when you don’t have a risk premium in asset prices. It is a bit of a dilemma: [central banks] want asset prices to rise to help transmit their monetary objectives into the economy, but in doing this they have suppressed risk premiums.”

“If things go wrong, whether earnings disappoint or a coronavirus causes a short- or long-term problem for the economy, there’s not a lot of buffer for asset prices to absorb that.”

The fund manager continued to suggest that investors looking for income could pay the price for elevated equity prices.

“The reality is if nothing goes too far wrong in the economy and liquidity keeps being injected in, markets could run up,” the fund manager said.

“But we think that run is not based on particularly solid fundamentals but a belief central banks will bail out investors.

“Bear in mind, that ended pretty painfully in the early 2000s.”

Mr Doyle believes the global economy is at risk if something breaks, such as a recession. The fund manager questions how long will the run last and how can it end without it being a manager disaster for the global economy.

“Central banks keep inflating asset prices. They have cut rates to basically zero and some countries below.

“We were in an environment where we had better value assets and high yields, and we now have incredibly low yields and elevated asset prices, so there’s not a lot of income.”

Mr Doyle concluded: “If you take a really cynical view of it, it’s a giant Ponzi scheme being created and nobody is sure how to get out of it.”

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About the author

Cameron Micallef

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron Micallef

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