Beware the hangover after long-running stocks party comes to an end
With the bull run in global equities nearly a decade old and valuation running ahead of fundamentals, the words of JPMorgan chief are worth remembering
It has been nearly a decade since the collapse of Lehman Brothers in the global financial crisis. Now, the go-go mood among investors is on again. Every month in Hong Kong and elsewhere, the property and stock markets seem to be reaching new heights. Fundamentally, the world economy is in recovery but still not in the best shape. At times like this when people start taking on greater risks and increasing leveraging, investors, particularly retail ones, need to exercise caution.
As JPMorgan chief executive officer Jamie Dimon used to say, every seven to 10 years, something horrible happens to the capital markets. Well, remember Black Monday in 1987, the Asian financial crisis in 1997, the dotcom implosion in 2000, the global financial crisis in 2007 ... The bull market in global equities is now almost a decade old, making it one of the longest in post-war history. In the past 10 years, every rally was greeted with scepticism and distrust; not any more though.
To be sure, the US economy has been expanding for eight years. The International Monetary Fund and other economic groups have predicted a healthy global growth this year. The Federal Reserve is tightening, but still doing it cautiously. But the Bank of Japan and European Central Bank are still propping up the market by injecting massive liquidity. Meanwhile, China’s economy has outpaced its overall 2017 growth target in the second quarter, and the IMF has revised upwards its growth forecasts for this year and next.