Neil Woodford says monetary policy is driving a global stock market bubble and there are “so many lights flashing red” he can’t keep count.
Woodford lists Bitcoin going through $10,000, European junk bonds yielding less than US Treasuries, historic low levels of volatility or triple-leveraged ETFs attracting gigantic inflows among the worrying signs.
“Ten years on from the global financial crisis, we are witnessing the product of the biggest monetary policy experiment in history. Investors have forgotten about risk and this is playing out in inflated asset prices and inflated valuations,” Woodford says, adding: “There are so many lights flashing red that I am losing count.”
Woodford also notes the difference in performance between value and growth stocks in the US is greater than at any stage in history.
While Woodford says the stretched valuations have echoes of the tech bubble, during which he was an investor, he says the current situation is more similar to the so-called nifty-fifty bubble from the late 1960s and early 1970s.
During that period a narrow group stocks with dependable growth characteristics enjoyed a run of popularity with investors that took their valuations to extreme, unsustainable levels, Woodford says.
Woodford says the warning comes with an opportunity to capture out of favour assets at “incredibly depressed” valuations, which he says he has only seen two or three times during his career.
“In the dotcom bubble it was the old economy stocks – today, in the UK stock market, it is domestically-focused stocks which have become profoundly unloved and undervalued,” he says.