LONDON – The executive director of Standard Chartered warned on Thursday that stock market valuations appear to have reached unsustainable levels amid a period of what he described as “speculative hype”, warning that a sale of technology could spread to other sectors. .
“There are indications that the broader stock market is frothy, regardless of whether there are multiple valuation differences (which) would indicate that the markets are certainly (in) some respects, toppish,” said Bill Winters, CEO of Standard Chartered. for CNBC’s “Squawk Box Europe” on Thursday.
“This does not apply to banks, I will add very quickly. I would say that stocks generally do not seem to be highly valued at the moment. But that is the nature of the speculative hype we are in now,” he said. added.
His comments come after US futures on the Dow Jones industrial average closed at a record high on Wednesday, while Federal Reserve Chairman Jerome Powell downplayed the threat of inflation.
Powell said it could take more than three years for prices to hit the US central bank’s inflation targets. It was another sign that the Fed intends to look beyond any short-term rise in inflation and is likely to keep interest rates stable for some time.
Inflation fears have risen in recent weeks amid a sharp rise in bond yields as policymakers debate another round of economic aid during the coronavirus crisis.
However, Winters said he was not concerned about short-term inflation. CEO StanChart said the combination of the current “very accommodative” monetary policy and the “very substantial” fiscal momentum, especially in the US, could lead to a temporary rise in inflation.
“But for this to translate into real market volatility would probably require another exogenous shock,” he added.
Technical concerns
When asked if growing technology stocks could impact larger markets if they suddenly became smaller, Winters replied: “It’s possible. We all remember the dotcom balloon very well and when the balloon bursts, of course it did. hit the tech sector, dotcoms, very hard. “
“But it spilled over into the wider economy and some would say it even led to – with the benefit of the retrospective – a very easy recession, even though it felt quite acute at the time,” he continued.
“I think there is still a very active debate about the value of some of these technology stocks or technology giants. When we look at the dotcom bubble and the number of companies that felt bubbles when they disappeared with market values of more than $ 1 trillion, who’s to say they weren’t grotesquely undervalued at the top of the dotcom bubble and not the other way around? “Winters said.
Earlier on Thursday, StanChart reported a 57% drop in annual profit for 2020, missing analysts’ expectations.
The London-based lender said the pretax profit reached $ 1.61 billion, compared to $ 3.71 billion in 2019 and an average of $ 1.85 billion of analysts’ forecasts compiled by the bank.
StanChart also restored its dividend and reaffirmed its long-term profit objectives.