Invest
Beware the reversal of the sharemarket rally, expert says
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
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.
RELATED ARTICLES
About the author
About the author
Stock market
6K Additive secures A$48 million through initial public offering on the Australian Stock Exchange
6K Additive, a prominent player in the advanced metal powders and alloy additions market, has made a significant stride by successfully completing its Initial Public Offering (IPO) on the Australian ...Read more
Stock market
Institutional investors increase stock allocations to 18-year high amid cautious market shifts
In a recent development, State Street Markets unveiled the findings of its latest State Street Institutional Investor Indicators, revealing intriguing shifts in institutional investor behaviourRead more
Stock market
FOREX.com launches in Australia to empower self-directed traders
StoneX Group Inc. (NASDAQ: SNEX) has announced the Australian launch of FOREX.com, expanding access for self-directed traders to a global suite of Contracts for Difference (CFD) products across ...Read more
Stock market
Westpac and CMC Markets strengthen partnership to enhance online trading services
In a significant move that underscores the evolving landscape of online trading in Australia, CMC Markets Stockbroking has been chosen as the preferred vendor by Westpac Banking Corporation to extend ...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
6K Additive secures A$48 million through initial public offering on the Australian Stock Exchange
6K Additive, a prominent player in the advanced metal powders and alloy additions market, has made a significant stride by successfully completing its Initial Public Offering (IPO) on the Australian ...Read more
Stock market
Institutional investors increase stock allocations to 18-year high amid cautious market shifts
In a recent development, State Street Markets unveiled the findings of its latest State Street Institutional Investor Indicators, revealing intriguing shifts in institutional investor behaviourRead more
Stock market
FOREX.com launches in Australia to empower self-directed traders
StoneX Group Inc. (NASDAQ: SNEX) has announced the Australian launch of FOREX.com, expanding access for self-directed traders to a global suite of Contracts for Difference (CFD) products across ...Read more
Stock market
Westpac and CMC Markets strengthen partnership to enhance online trading services
In a significant move that underscores the evolving landscape of online trading in Australia, CMC Markets Stockbroking has been chosen as the preferred vendor by Westpac Banking Corporation to extend ...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
