26 Jan

Stock market bubble fears overblown, micro-bubbles are the issue

January 26, 2021

By George Prior

– Concerns over a large stock market bubble are currently overblown – it’s the micro-bubbles that could pose more imminent risks to investors, warns the CEO of one of the world’s largest independent financial advisory and fintech organizations.

The warning from Nigel Green, chief executive and founder of deVere Group, comes as global shares reached almost record highs on Monday.

MSCI’s All Country World index, which tracks stocks across 49 countries, was up 0.2% on the day.

Mr Green says: “As stocks hit historic highs, there are fears that the boom we’re currently experiencing could end in a bust, similar to the dot-com era.

“For the time being, we believe that concerns over a large stock market bubble are overblown. To understand the reasoning, we need to look at why markets are valued so high at the moment.

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“Essentially, it is down to the unprecedented levels of monetary and fiscal support, the ultra-low bond yields, the historically low interest rates, that earnings are up, and that both institutional and retail investors have large reserves of excess cash.

“This is a rare combination and, on the back of all this, it can be expected to take years for markets to cool significantly.”

He continues: “What is perhaps more concerning are micro-bubbles of a small group of stocks that consistently rush to new highs and reject all balanced valuations.

“Hyper growth stocks, which often lure in Do-It Yourself investors with their headline-grabbing current performance, at the moment appear to have no ceiling.

“However, highly profitable incumbents in their sectors could soon bring the ‘story stocks’ back down to earth, with their valuations headed for a meaningful correction.”

Another major risk of micro-bubble stocks, says the deVere boss, is that they overshadow the potential of new stocks and sectors, with investors subsequently missing key low entry point opportunities.

“There are also new businesses emerging which people, including myself, see as the future. Not all of these will succeed, of course, whilst some will rocket,” he notes.

Therefore, investors should work alongside a good fund manager to seek out those stocks most likely to generate and build their wealth over the long-term.

Nigel Green concludes: “In today’s landscape, it is not the macro-bubble of which investors should be wary.

“Any potential bursting of bubbles is likely to be within specific stocks, so unlikely to rock the global financial markets as has happened previously – but individual investors could still be caught off-guard.

“Micro-bubble spotting, and diversification across asset class, sector, region and even currency, should become a priority for investors right now.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.


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