Toppy markets: what the experts think
A question of confidence
The new US Secretary of state, former Exxonmobil boss Rex Tillerson, didn’t inspire confidence this week when he revealed that he only overcame his “initial reluctance” to take the job on the advice of his wife, who told him: “God’s not through with you.” By coincidence, that day the Dow Jones and the S&P 500 suffered “their worst one-day declines” since President Trump’s election in November, said Patrick Hosking in The Times. Traders, it seems, are worried that the administration will “struggle to deliver” the promised tax cuts that have helped “propel markets to record highs”. But that’s not the only concern. According to the latest monthly barometer from Bank of America Merrill Lynch (BAML), global fund managers “think that shares are more overvalued than at any time since the peak of the technology bubble 17 years ago” – sobering news for anyone in Britain looking to take the plunge ahead of the looming Isa deadline, on 5 April.
Where’s the value?
Most of the concern is confined to the US which, after an eight-year bull run, was dubbed the world’s most “overvalued region” by 81% of the investors polled. “As cycles go, this one is pretty long in the tooth,” observed BAML analyst Ronan Carr. Yet fund managers are “shunning UK shares with even greater fervour”: a net 30% of respondents claim to be “underweight” here. Investors looking for value, they believe, would do better to hunt it down in either the eurozone or emerging markets.
ETF bubble trouble
Stock bubbles are often fuelled by new financial technologies that make it easier for ordinary investors to pump money into the market, says John Stepek on Moneyweek.com. That’s one reason why the amount of cash heading into exchange traded funds (ETFS), which passively track market indices, is worrying. In 2016, a record-breaking $390bn went into ETFS; in the first two months of this year, $131bn more has been pumped in. There’s nothing wrong with tracker funds, or ETFS, per se – “they just happen to be the transmission mechanism for everyone’s enthusiasm”. But future scholars, analysing “the crash of the late 2010searly 2020s”, may well cite ETFS as a key contributory factor.