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”.
RELATED ARTICLES
About the author
About the author
Stock market
Portfolio reviews as an operating discipline: turning volatility into a competitive edge
In a higher-rate, higher-volatility world, portfolio reviews are no longer an annual hygiene task; they’re a core operating rhythm that protects cash flow, unlocks tax alpha, and sharpens risk ...Read more
Stock market
Fee war on the ASX: Global X’s A300 turns up the heat on core Aussie equity ETFs
Global X has lobbed a 0.04% management fee into Australia’s core equity sandbox, launching the Australia 300 ETF (A300) to take on entrenched giants. Read more
Stock market
Challenger IM shakes up the ASX with private credit note and a side of risk
Challenger Investment Management has taken private credit mainstream with an ASX-listed note structure—LiFTs—that secured roughly $100 million in cornerstone commitments within a day of launch. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
Stock market
Portfolio reviews as an operating discipline: turning volatility into a competitive edge
In a higher-rate, higher-volatility world, portfolio reviews are no longer an annual hygiene task; they’re a core operating rhythm that protects cash flow, unlocks tax alpha, and sharpens risk ...Read more
Stock market
Fee war on the ASX: Global X’s A300 turns up the heat on core Aussie equity ETFs
Global X has lobbed a 0.04% management fee into Australia’s core equity sandbox, launching the Australia 300 ETF (A300) to take on entrenched giants. Read more
Stock market
Challenger IM shakes up the ASX with private credit note and a side of risk
Challenger Investment Management has taken private credit mainstream with an ASX-listed note structure—LiFTs—that secured roughly $100 million in cornerstone commitments within a day of launch. Read more
Stock market
International stocks: Diversifying your portfolio beyond Australia
In an increasingly globalized market, Australian investors have the opportunity to enhance their investment portfolio by incorporating international stocks. Diversifying your investments globally can ...Read more
Stock market
Stock market rally likely to continue regardless of Fed minutes tone, says deVere CEO
The bull run that has propelled Wall Street's major indexes to record highs this month is expected to continue regardless of the tone of the upcoming Federal Reserve minutes, according to Nigel Green, ...Read more
Stock market
US stock rally driven more by valuation growth than earnings, leaving tech names vulnerable: Innova
The strong gains in US stocks over the past year, particularly in the technology sector, have been driven more by expanding valuations than underlying earnings growth, leaving them exposed to a ...Read more
Stock market
Sun Silver to make its ASX debut with a $13 million IPO
Sun Silver Limited (proposed ASX Code: "SS1") has announced the opening of its Initial Public Offering (IPO) today, aiming to raise a minimum of $10 million and a maximum of $13 million (before costs)Read more
Stock market
Nasdaq hits record high, underscores the value of tech in investment portfolios
The Nasdaq Composite's surge to an all-time high last Friday highlights the importance of incorporating technology into investment strategies. Read more
