There is growing angst among investors over financial market price bubbles, and top of the list of concerns were the cryptocurrency bitcoin and U.S. tech stocks, two closely followed surveys showed on Tuesday.
According to nearly 90 per cent of respondents in Deutsche Bank’s monthly money-manager study, many price bubbles were now being blown. The most extreme though is bitcoin, with nearly half of those surveyed seeing it at a maximum 10 on a 1-10 bubble scale.
More generally, too, when asked specifically about the 12-month fate of bitcoin – which surged 300 per cent last year – and electric vehicle maker Tesla Inc. which soared nearly 750 per cent and is seen as emblematic of highly priced tech stocks, a majority of respondents said they were now more likely to halve than double in value.
A similar Bank of America (BofA) survey showed that buying bitcoin had replaced buying tech stocks as the trade which fund managers saw as most crowded, knocking tech off the top spot for the first time since October, 2019, and into second place.
The cryptocoin hit a record high US$40,000 earlier this month, having rallied more than 900 per cent since a low in March and having only just breached US$20,000 in mid-December.
Investors were bullish on the outlook for world growth, with the proportion of fund managers surveyed by BofA who said the global economy was in an early-cycle phase, as opposed to a recession, at its highest in 11 years.
A record 92 per cent expected higher global inflation over the next year, though Deutsche Bank’s survey also showed 71 per cent expected the U.S. Federal Reserve to resist the temptation to start removing the stimulus that has helped markets rally.
The biggest potential tail risks that could unsettle markets in the BofA study were seen vaccine rollout problems (30 per cent), if the Fed did taper its asset purchases (29 per cent) and the Wall Street bubble bursting (18 per cent).
Still, although fund managers are wary of the bubbles, they weren’t yet backing away from them.
BofA said a record 19 per cent of investors – who altogether manage more than US$500-billion worth of assets – were currently taking on more risk than normal in their investment portfolios.
A steeper yield curve – usually where longer-dated borrowing costs rise on expectations that economic growth will allow official interest rates to rise – was expected by a record 83 per cent of BofA investors.
That is more than after the 2008 collapse of Lehman Brothers, the 2013 U.S. Federal Reserve’s “Taper Tantrum” or after the 2016 U.S. election.
Elsewhere, underowned U.K. equities saw some money flowing in. But at 15 per cent underweight, it remained pinned as the most underweight region, BofA’s survey showed.
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