PSigma has warned an “extreme level” of optimism among investors could see many burned by undershooting corporates or faltering economies.
Chief investment officer Thomas Becket says while this year is likely to deliver greater growth than in past years in terms of global output, valuations have soared in the last two years to “uncomfortable” levels.
He says: “There appears to be a high level of complacency from investors who are keen to grab the green shoots of economic recovery as sufficient evidence to take increased risk in their portfolios.
“In effect, we have factored in tomorrow’s positive economic momentum and translational effect upon corporate profits into today’s prices.
“Any disappointment at an economic or investment level is likely to be punished; potentially harshly so.”
Becket says a “proper” correction for developed equities is overdue and a setback in the coming months is likely.
But he says any falloff would only be a hiccup in a continuing global recovery and that despite short-term concerns, equities remain PSigma’s asset of choice for the next five years. Overall he believes corporate balance sheets remain strong, borrowing costs low, and earnings growth is headed in the right direction.
Becket adds: “While we would argue many share prices are full, it is hard to spot any concerted signs of ridiculous valuations.”
Hart Greaves partner Ken Hart says many clients read about booming prospects in the newspapers and then get overly bullish about what future returns will be.
He says: “There is a lot of talk about the chances for big growth and it could all go badly wrong. The point is safeguarding clients and we are conscious of the need to manage clients’ expectations.”