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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 subdued April price growth and how prices are predicted to move for the remainder of the year.

RMIT’s senior lecturer of finance, Dr Angel Zhong, talks about the Biden climate summit and impacts on the Australian sharemarket, as well as the possibility of a carbon border tax and what it means.

And lastly, tax and super guru Timothy Munro gives his thoughts on the overhaul of the superannuation performance test and the upcoming budget.

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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Beware the reversal of the sharemarket rally, expert says

By Cameron Micallef

January 24 2021
Share

Invest

Beware the reversal of the sharemarket rally, expert says

By Cameron Micallef
January 24 2021

The companies that offer the greatest risk for investors in 2021 are somewhat ironically many of the same companies that have provided the greatest return to investors in 2020, an expert has warned.

Beware the reversal of the sharemarket rally, expert says

By Cameron Micallef

January 24 2021
Share

The companies that offer the greatest risk for investors in 2021 are somewhat ironically many of the same companies that have provided the greatest return to investors in 2020, an expert has warned.

According to State Street, compared with history, global equity markets are trading at expensive multiples on the back of “super accommodative” central bank policy settings and the potential for a return to normal, thanks to the vaccines.

But investors are being warned against “chasing the momentum”.

According to State Street Global Advisors’ head of portfolio management, Bruce Apted, while the market is expensive as a whole, some companies have been neglected despite offering compelling value.

“The (Australian) market is expensive as a whole, but some companies are extremely expensive, while others have been neglected and offer compelling value,” Mr Apted said.

“The companies that offer the greatest risk for investors in 2021 are somewhat ironically many of the same companies that have provided the greatest return to investors in 2020.

“The greatest risk is associated with those companies now priced for perfection in terms of growth, low interest rates, and a world in which investors had very few other growth investment opportunities.”

Mr Apted also warned against the psychological pressures to join the momentum trade.

“As prices increase, many investors will be more easily swayed by arguments for ever-increasing prices. After all, millions of people could not be wrong – could they?

“Stories of your friends and colleagues retiring from their bitcoin accounts or 100 per cent returns in 2020 will entice many to jump on the trends, especially when the prices are moving exponentially. Chasing the momentum trade is especially dangerous in the later stage of the exuberance,” Mr Apted explained.

Extreme valuations aren’t the only sign of exuberance

He highlighted that while stretched valuations are a sign of increasing risks, there are also many other signs of over exuberance.

Corporate behavior – huge issuance, including IPO, SPAC’s, M&A and increasing corporate debt
The proportion of companies that would not be viable but for ultra low rates and fiscal support
Exponential price increases – e.g. Tesla or Bitcoin
Positioning – low cash levels reflecting close to full investment
Narrow rally – a few mega capitalised stocks driving almost all the index returns
Speculation – increase in online trading, speculation and leverage (Robin Hood etc.)
Risky stocks are outperforming less risky stocks

Mr Apted told investors to stay positioned for the reversal of the risk rally, noting that “eventually the gains made by the risk trade are reversed”.

“We are currently experiencing one of these episodes, and if history is a guide, then it will likely dissipate in time,” he concluded.

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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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