Invest
Beware the microbubbles, expert warns
Investors are being warned that concerns about the sharemarket being overvalued are overblown, with microbubbles posing the imminent risk to investors, an expert has stated.
Beware the microbubbles, expert warns
Investors are being warned that concerns about the sharemarket being overvalued are overblown, with microbubbles posing the imminent risk to investors, an expert has stated.
The CEO of deVere Group, Nigel Green, said that despite global shares reaching an almost record highs on Monday, higher valuations should be expected.
He highlighted the large monetary and fiscal response to the COVID-19 pandemic, which has resulted in ultra low bond rates, and record-low interest rates which is leading to higher profits for businesses.
He also pointed out that institutions and retail investors with spare capital have little place to put their money, which is leading to a higher share prices.
“As stocks hit historic highs, there are fears that the boom we’re currently experiencing could end in a bust, similar to the dot-com era,” Mr Green said.
“For the time being, we believe that concerns over a large stock market bubble are overblown. To understand the reasoning, we need to look at why markets are valued so high at the moment.”
However, while highlighting a market downturn is unlikely, the investor pointed out that microbubbles of a small group of stocks that consistently rush to new highs against strong fundamentals are putting investors’ capital at risk.
“Hyper growth stocks, which often lure in do-it-yourself investors with their headline-grabbing current performance, at the moment appear to have no ceiling.
“However, highly profitable incumbents in their sectors could soon bring the ‘story stocks’ back down to earth, with their valuations headed for a meaningful correction.”
Another major risk of microbubble stocks, said the deVere boss, is that they overshadow the potential of new stocks and sectors, with investors subsequently missing key low entry point opportunities.
“There are also new businesses emerging which people, including myself, see as the future. Not all of these will succeed, of course, while some will rocket,” he noted.
“Therefore, investors should work alongside a good fund manager to seek out those stocks most likely to generate and build their wealth over the long term.
The CEO believes investors today should be more worried about the microbubble instead of a macrobubble.
“Any potential bursting of bubbles is likely to be within specific stocks, so unlikely to rock the global financial markets as has happened previously – but individual investors could still be caught off guard.
“Microbubble spotting, and diversification across asset class, sector, region and even currency, should become a priority for investors right now,” he concluded.
About the author
About the author
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Stock market
The 6 unique Australian market affects that all active managers can exploit
The uniqueness of the Australian equities market is providing fund managers with an opportunity to essentially beat the market, new research has revealed. ...Read more
Stock market
‘Don’t believe the hype’: ASIC warns of risks for new market participants
ASIC has expressed concern that inexperienced or uninformed investors are putting their capital at unnecessary risk when tempted into the market by questionable marketing strategies from market promot...Read more
Stock market
How do you choose the best ETFs?
In recent years, exchange-traded funds have become an increasingly popular option among Aussie investors. ...Read more
Stock market
Lockdowns instigate a rise in new investors
Despite COVID-19 leaving individuals and businesses to face an uncertain future, retail investors’ appetites for shares have increased throughout the pandemic, a new report has found. ...Read more
Stock market
‘Code red for humanity’ a wake-up call for private and public investment
Retail investors that have been advocating for sustainable and ESG investing are hoping a new report released by the United Nations will serve as a wake-up call to the financial industry and governmen...Read more
How the post-lockdown period will influence property, what the soaring NFT market means, and defining financial wellness
Listen now
APRA’s mortgage crackdown, the power of DeFi and last-minute tax tips
Listen now
What to expect as the end of lockdown looms? Will the Stage 2 tax cuts boost your tax return? Where should investors be looking as the economy reopens?
Listen now
Could property prices inflate by another 20%? What’s happening in recent dividend announcements? Did your fund fail the YFYS test?
Listen now
Stock market
2 big questions investors should ask as Australia reopens
Investors need to stop thinking about how to profit from the mineral sector’s struggles, and start looking at when the best time to ride the recovery will be. ...Read more
Stock market
Trading app popularity skyrockets as retail sector booms
In 2021, trading has never been easier for retail investors, meaning the number of users on trading applications has exploded to an all-time high. ...Read more
Stock market
ETF rush predicted to intensify
The Australian ETF sector advanced AU$6.3 billion in August to hit a new milestone, as its popularity among financial advisers soared. ...Read more
Stock market
The 6 unique Australian market affects that all active managers can exploit
The uniqueness of the Australian equities market is providing fund managers with an opportunity to essentially beat the market, new research has revealed. ...Read more
Stock market
‘Don’t believe the hype’: ASIC warns of risks for new market participants
ASIC has expressed concern that inexperienced or uninformed investors are putting their capital at unnecessary risk when tempted into the market by questionable marketing strategies from market promot...Read more
Stock market
How do you choose the best ETFs?
In recent years, exchange-traded funds have become an increasingly popular option among Aussie investors. ...Read more
Stock market
Lockdowns instigate a rise in new investors
Despite COVID-19 leaving individuals and businesses to face an uncertain future, retail investors’ appetites for shares have increased throughout the pandemic, a new report has found. ...Read more
Stock market
‘Code red for humanity’ a wake-up call for private and public investment
Retail investors that have been advocating for sustainable and ESG investing are hoping a new report released by the United Nations will serve as a wake-up call to the financial industry and governmen...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
