Investor anxiety mounts over prospect of stock market bubble
25 Jan, 2021 08:11 PM
5 minutes to read
Financial Times
By: Katie Martin
Screaming stock rallies and wild speculation by have-a-go amateur investors are stirring concerns among market veterans over a bubble to rival anything seen in the past century. After a dramatic rebound from the coronavirus crash last March, benchmark equity indices have toppled a series of record highs in the early days of 2021. Bitcoin, the most speculative bet of them all, has raced to new extremes. Popular stocks like Tesla continue to defy efforts at sober valuation.
Baupost Group founder Seth Klarman has warned that investors are under the misplaced impression that risk in markets has simply vanished , likening them to frogs being slowly brought to the boil. GMO co-founder Jeremy Grantham has described the rally since 2009 as an epic bubble characterised by extreme overvaluation .
ASR points out that more than 10 per cent of stocks in the US blue-chip S&P 500 benchmark are 40 per cent or more above their averages of the past 200 days â a phenomenon seen only four times in the past 35 years.âClients are increasingly worried,â said Ian Hartnett, co-founder of ASR. But, he added, rallies could just be getting started, if interest rates remain low, and fund managers feel pressure to hop on the bandwagon.
âThere is career risk in the fear of missing out,â he said. âPeople find a way to rationalise every bubble. They have to explain to a chief investment officer, or to an investment committee, why they have gone long hereâ.