LONDON (Reuters) - The boom in the shares of U.S. technology giants is a bubble that will burst once interest rates increase or “over exuberance” in the tech story fades, Pascal Blanque, chief investment officer at asset manager Amundi said on Thursday.
“It’s a perfect bubble waiting to burst. It’s not if, but when,” Blanque told the Reuters Global Investment Outlook Summit, adding that you “cannot justify the current valuations” and investors should adjust their stock portfolios accordingly.
Other panelists at the summit session were also cautious about the run-up in technology stocks, particularly as U.S. regulators and lawmakers look at whether the companies have become too powerful.
But they said they did not expect a 2000-style dotcom crash in prices.
Erik Knutzen, CIO at Neuberger Berman, said tech shares were not “massively over-valued assets” but rather “long duration assets” and made sense to own in a low inflation world.
Technology shares have rocketed in 2020 to record highs, both fuelling and surpassing broader stock rebounds. The tech-heavy Nasdaq has soared 38% and is poised for its biggest annual jump since 2009. That contrasts with a rise of around 14% in the broader S&P 500 index and a 5% gain in the blue chip Dow Jones.
With technology seeping into every facet of life and helping many businesses and individuals operate through the coronavirus pandemic, any correction in stock prices was likely to be “tempered”, said Afsaneh Mashayekhi Beschloss, CEO, RockCreek.
“There will be corrections but not necessarily of the same scale of the past,” she said.
Asked about the biggest legacy of the COVID-19 pandemic for the investment world, several panelists said a return of inflation was eventually likely after so much government and central bank spending, although 2021 would be too early to see that.
Amundi’s Blanque said the world was entering a new macroeconomic regime and that stagflation -- a period of poor economic growth and high inflation seen during the 1970s -- beckoned.
“Many people think we are in the 1930s.....I think we will wake up somewhere in the 1970s,” he said. “The consequences for financial stability are being challenged. All in all we are transitioning towards a regime shift in the macro financial world.”
Next year would also see the dollar weaken, the panelists said, as the Federal Reserve stuck with its ultra-easy policy.
The dollar index, a measure of its value against six major currencies, on Thursday hit its lowest since April 2018.
Neuberger Berman’s Knutzen said his biggest short-term view in markets was that currency volatility would rise as the U.S. dollar extended its recent drop. He predicted the dollar would weaken over the next 12-months.
The money managers also said significant change was coming for the investment industry as retail investors increasingly turned to lower-cost trading platforms for buying and selling shares that compete with higher-fee asset managers for business.
“This is the year of the retail investor and it’s not just Robinhood in the U.S.,” said Teresa Barger, CEO at emerging markets fund Cartica Management, referring to the financial technology startup credited with helping popularise trading among millennials.
Reporting by Tommy Wilkes, Dhara Ranasinghe and Mike Dolan; Editing by David Gregorio
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