Threats to ‘ex­u­ber­ant’ share val­ues

Irish Examiner - - Business - Ea­mon Quinn

Rises in bond yields this year threaten stretched and “ex­u­ber­ant” valu­a­tions of stock mar­kets, Davy credit ex­pert Donal O’Ma­hony has warned.

In its monthly debt di­gest, Mr O’Ma­hony said that even as eco­nomic fun­da­men­tals re­mained“solid” and “eu­pho­ria” in mar­kets was held back last year, valu­a­tions nonethe­less look “well-stretched, and bond mar­kets threaten”.

He said that re­cent price moves re­sem­ble “the melt-up stage of a pro­tracted eq­uity bull mar­ket, al­beit with mar­ket in­ter­nals still re­as­sur­ing, lever­age in­di­ca­tors rel­a­tively sub­dued, and in­vestor sen­si­bil­i­ties more op­ti­mistic than eu­phoric, the “bit­con” (sic) craze ex­cepted”. It comes af­ter a week when US gov­ern­ment bonds have slid, amid fears of a mar­ket rout.

How­ever, there are mixed views on whether the bond mar­ket bull run is draw­ing to an end. Janus fund man­ager Bill Gross has de­clared the end of the bull mar­ket, but he doesn’t fore­see dra­matic losses.

“We’re sim­ply not at the point when we’re look­ing over our shoul­der once an hour to see what’s com­ing at us next,” said Jim Vo­gel, ex­ec­u­tive vice pres­i­dent at FTN Fi­nan­cial Cap­i­tal Mar­kets.

Mean­while, two new re­ports are up­beat on the out­look of the Ir­ish econ­omy. In its latest quar­terly bul­letin, Mer­rion Cap­i­tal chief econ­o­mist Alan McQuaid fore­cast GDP leaped by 7% last year and will grow 5.5% in 2018, mean­ing the un­em­ploy­ment rates will fall sig­nif­i­cantly be­low 5.5% by the end of the year. Nonethe­less, he pre­dicts that the gap in eco­nomic pros­per­ity and ac­tiv­ity will widen be­tween the Dublin re­gion and other ar­eas and that hous­ing will con­tinue to be the po­lit­i­cal “hot potato” and prices will likely rise by dou­ble-digit in­creases through 2018.

“Res­i­den­tial prop­erty prices are only go­ing one way in the short-term un­til the sup­ply is­sue is re­solved.

“Hous­ing has now over­taken health as the main po­lit­i­cal hot potato, and the key fo­cus in bud­get 2018 was on mea­sures ini­tia­tives that should help al­le­vi­ate the prob­lems go­ing for­ward, but things won’t change overnight.

“One can ar­gue un­til the cows come home as to the mer­its of the pro­pos­als an­nounced, but at least the Gov­ern­ment has taken a step in the right di­rec­tion, with an ac­knowl­edg­ment that some­thing dra­matic needs to be done and sooner rather than later,” Mr McQuaid said.

In its new weekly bul­letin, Si­mon Barry, chief econ­o­mist at Ul­ster Bank in the Repub­lic said: “House­hold in­come con­tin­ues to rise at a solid pace, in turn sup­port­ing strong growth in re­tail sales and house prices”.

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