Swiss asset managers reckon that stocks are due for a fall. They're also not sure whether bond markets provide a refuge, given ultra-low central bank interest rates.
Almost all Swiss asset managers predict that the global equity market will drop in the next six to 12 months, suggesting that they think stocks are overpriced.
A survey of 100 asset managers in Switzerland, conducted by Managing Partners Group, the Geneva-based asset management group, showed that 44 per cent of them expect stocks could slide by between 30 and 40 per cent. And 98 per cent of the surveyed firms think there will be a correction.
The most likely catalyst for a drop is expected to be a natural disaster or a military conflict, which was cited as a potential cause by 60 per cent of respondents.
Other potential causes include a price bubble correction (49 per cent); a financial crisis (42 per cent); a recession (34 per cent); the Federal Reserve losing control of quantitative easing (28 per cent); a major default (25 per cent); or that a large fund blows up (8 per cent).
After the roller-coaster of 2020, when stocks were initially smashed by COVID-19 and later bounced back on massive central bank money printing, equities have continued to push higher. There are concerns about rising inflation in certain nations such as the US and the UK, however, bringing with it expectations that at some point central banks will dampen monetary easing and hike rates.
In the US, the S&P 500 Shiller CAPE Ratio (aka the Cyclically Adjusted Price-Earnings ratio), stood at 37.98 in July, up from 37.05 last month and up from 29.60 one year ago, and the highest level in three years. (The ratio is used as a valuation metric to forecast future returns, where a higher CAPE ratio could reflect lower returns over the next couple of decades, whereas a lower CAPE ratio could reflect higher returns over the next couple of decades.)
“There is almost a universal belief that equities are overpriced, so there needs to be a trigger to correct prices,” Jeremy Leach, chief executive, MPG, said.
“In the US, the inflation rate is now 5.4 per cent which is around twice the earnings on the S&P 500. How much more is needed to show how much equities are overpriced?” he said.
MPG said high and rising inflation will cause a correction in the bond market too, which will be worrying for Swiss asset managers, who traditionally maintain substantial exposure to fixed securities.
The firm, which invests in areas such as US life settlement
policies, said it provides an alternative when bonds no longer
provide an attractive alternative to equities, given valuation
levels. Alternative assets such as commodities and real estate
are also attractive options.