Invest
Be wary of another pricing bubble
Today’s investors have faced “the recession we had to have”, the dotcom boom and the subprime mortgage default in 2008. Are we now on the cusp of the next bubble?
Be wary of another pricing bubble
Today’s investors have faced “the recession we had to have”, the dotcom boom and the subprime mortgage default in 2008. Are we now on the cusp of the next bubble?
According to MFS’ portfolio manager and global investment strategist, Robert Almeida jnr, the world is currently facing a bubble caused by investors after short-term profits as opposed to long-term goals.
Why the shift?
With central banks attempting to push risk spectrums through quantitative easing (QE) or encouraging new money to buy assets, markets have not reacted as these central banks expected them to.
“The hope was that capital would make its way into the hands of producers who’d then invest in labour, production and economically accretive activities,” Mr Almeida said.
Instead, due to management compensation structures aligning with stock performances, managers of companies have been putting short-term performance ahead of long-term objectives.
“As a result, balance sheets were levered, dividends increased, M&A (mergers and acquisitions) and buyback of shares skyrocketed,” the manager said.
Long-term implications
In the wake of the technology bubble, earnings per share fell in excess of 30 per cent while during the GFC earnings fell by 55 per cent.
Financial markets are not a science, Mr Almeida was quick to point out, and he queried how companies which have underinvested in their core business function will fare when the “artificial margin tailwinds of financial wizardry caused by QE subside”.
What should investors do?
Long-term companies with outsized leveraged and easily substituted products are at risk when markets eventually draw back, Mr Almeida said.
During a downturn, he advised investors to look to “companies whose products or services are unique and who focus on the long term”, as he believes they should “do just fine – thanks to sustainable cash flows”.
About the author
About the author
Stock market
The pros and cons of DIY investing
“Social trading” is being flagged as a very real issue now affecting the Australian stock market – especially as low-cost stock trade platforms gain popularity. ...Read more
Stock market
Where to find dividends in a low-rate environment
Australian investors who are income-focused are still able to find strong dividend-paying stocks, but the market is changing, an expert has said. ...Read more
Stock market
Did investors overreact to the COVID-19 pandemic?
The economic downturn has not hit many sectors of the economy as hard as first predicted, with the reporting season revealing that many sectors will recover quickly, an investment fund has revealed. ...Read more
Stock market
Market volatility not a worry for Millennial investors
In spite of COVID-19-related volatility, Australian investors aged between 24 and 39 remain bullish about the current sharemarket. ...Read more
Stock market
Why investors will miss their mark for the next 5 years
Australian investors are urged to rethink their investment targets, with the COVID-19 recovery likely to have an impact on returns, new research has found. ...Read more
Stock market
Standing strong in a crisis, ethical investments are here to stay
Ethical investments are more than just a short-term fad, an investment manager has advised. ...Read more
Stock market
Sovereign wealth fund goes negative for the first time since the GFC
The Future Fund has posted a rare negative return for 2020 and warned that a “challenging and volatile” economic climate could hurt previously strong gains moving forward. ...Read more
Stock market
Don’t worry about dividends: Stocks still going strong
Dividends are still up for grabs for active investors willing to wade through the major headlines and an abundance of market negativity, an investment expert has flagged. ...Read more
Stock market
The pros and cons of DIY investing
“Social trading” is being flagged as a very real issue now affecting the Australian stock market – especially as low-cost stock trade platforms gain popularity. ...Read more
Stock market
Where to find dividends in a low-rate environment
Australian investors who are income-focused are still able to find strong dividend-paying stocks, but the market is changing, an expert has said. ...Read more
Stock market
Did investors overreact to the COVID-19 pandemic?
The economic downturn has not hit many sectors of the economy as hard as first predicted, with the reporting season revealing that many sectors will recover quickly, an investment fund has revealed. ...Read more
Stock market
Market volatility not a worry for Millennial investors
In spite of COVID-19-related volatility, Australian investors aged between 24 and 39 remain bullish about the current sharemarket. ...Read more
Stock market
Why investors will miss their mark for the next 5 years
Australian investors are urged to rethink their investment targets, with the COVID-19 recovery likely to have an impact on returns, new research has found. ...Read more
Stock market
Standing strong in a crisis, ethical investments are here to stay
Ethical investments are more than just a short-term fad, an investment manager has advised. ...Read more
Stock market
Sovereign wealth fund goes negative for the first time since the GFC
The Future Fund has posted a rare negative return for 2020 and warned that a “challenging and volatile” economic climate could hurt previously strong gains moving forward. ...Read more
Stock market
Don’t worry about dividends: Stocks still going strong
Dividends are still up for grabs for active investors willing to wade through the major headlines and an abundance of market negativity, an investment expert has flagged. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
