Displaying items by tag: bubble

Wednesday, 11 August 2021 18:18

The Market’s New Systemic Risk

(New York)

Any seasoned market veteran will tell you that today’s hottest thing might very well turn into the epicenter of tomorrow’s crisis. Tech stocks led to the Dotcom crash, structured credit led to the Financial Crisis. Now ask yourself, what is the hottest product of the moment? The answer is simple: ESG stocks. ESG is nebulous as an asset class since it crosses many boundaries, but in reality, a lot of the new ESG AUM has flowed directly into large cap tech stocks. This means that a lot of the buying going on in large cap tech is just de facto ESG buying.


FINSUM: ESG is a surging category and a lot of Dollars are flowing in. Since the term and its actual meaning are still vague, a lot of the money flows into tech, which is almost universally seen as ESG friendly. When might the music stop?

Published in Eq: Tech
Thursday, 22 July 2021 17:46

Don’t Worry About an ESG Stock Bubble

(San Francisco)

Many investors are worried that the huge growth in ESG assets might be causing a bubble in the most common stocks in ESG funds. However, the reality is that they are not. According to Bridgewater Associates: “The shift to ESG appears to be still in its early innings. Investor positioning in sustainable equities is not yet overextended … The US ESG index looks very similar to the aggregate market, and much less frothy than stocks that have been most popular with retail investors where we think valuations are most stretched”.


FINSUM: In other words, despite all the hype about ESG asset growth, overall valuations are in line with the broader market so there is no specific risk to ESG funds.

Published in Eq: Tech
Thursday, 25 February 2021 17:39

Why ESG is Like the Dotcom Bubble

(New York)

One of the largest asset managers in the world made a potentially very worrying claim today: that ESG today is a lot like the tech bubble was in year 2000. The sovereign wealth fund of Norway’s CEO, Nicolai Tangen, says that much like dotcom stocks, ESG asset are trading at very frothy valuations. What is interesting about his claim, though, is that he is not focused on the potential “bubble”, but rather on what those valuations mean. “What is interesting is, if you compare the situation now with, for example, the situation before the year 2000, then the stock market was right that technology companies were going to do well in the future … But the valuation went a little high, so it came down again, but the technological development continued, said Tangen. He continued, “We may see something of the same sort now, that what is happening in the green shift is extremely important and real”.


FINSUM: So Tangen is saying there is a big bubble in ESG, but in the way only an ultra-long-term investor like a sovereign wealth fund can, he is focused on how the market is “right” about its long-term potential.

Published in Eq: Total Market
Tuesday, 16 February 2021 17:41

Why the Market is Not in a Bubble

(New York)

There has been a lot of speculation over the last month about whether the market is in a bubble. The reason for this are numerous: the huge run up in large cap growth stocks, the meme stock frenzy and beyond. However, the answer to whether the market is in a bubble can be found in a recent study and paper by Harvard. Researchers from the university outlined what bubbles really are, and clearly show that by historical standards there is only one sector of the market currently in a bubble: the S&P 500 Technology Hardware, Storage & Peripherals index, which does include Apple. However, no other sectors, nor the S&P 500 itself could be considered to be in a bubble. In fact, it is quite rare for the market as a whole to be in a bubble. Rather, market bubbles are usually constrained to a small handful of sectors. This could be seen in what is considered to be one of the biggest of all time—the Dotcom bubble. In the late 1990s and early 2000s, tech stocks surged to extraordinary valuations, while many sectors, like value stocks, lagged. When the bubble burst, many sectors actually benefitted (like value stocks).


FINSUM: This history is quite useful for context, but as our readers know, we feel each market cycle is unique and thus historical insight can only take you so far. In this instance, we think it is important to take into consideration that bonds are yielding very little, meaning there is no good alternative to equities. We believe this situation—which is obviously created/supported by the Fed and government—will help continue to lift equities.

Published in Eq: Total Market
Tuesday, 23 July 2019 08:40

UBS Warns of Bursting Equity Bubble

(New York)

UBS just went on the record warning of a potential bursting bubble in equity markets. The bank’s CEO says that global coordinated central bank easing posed a threat to markets and risked inflating a bubble. “I’d be very, very careful about growing further the balance sheet of central banks”, said CEO Sergio Ermotti. He further explained that current market prices were out of sync with investor sentiment, posing a risk. However, he did say that clients were ready to buy the dips in the market, which was an encouraging sign.


FINSUM: The equity markets remind us a bit of US politics at the moment. There are a lot of people in the middle without a lot of conviction, but those on the sharper ends are driving the whole thing forward.

Published in Eq: Total Market
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