LONDON – The executive director of Standard Chartered warned on Thursday that stock market valuations appear to have reached unsustainable levels amid a period of what he described as “speculative hype”, and warned that a sale of technology products may be spread to other sectors.
“There are indications that the broader stock market is frothy, if it’s the various valuation multiples (which) would indicate that markets are certainly (in) some respects, outdated,” said Bill Winters, CEO of Standard Chartered , on CNBC’s “Squawk Box Europe” on Thursday.
“That doesn’t apply to banks, I’ll add that very quickly. I’d say stock stocks don’t seem to be generally valued right now. But that’s the nature of the speculative hype we’re in right now,” he said. added.
His comments come after U.S. futures contracts tied to the Dow Jones industrial average closed the record high on Wednesday, and when Federal Reserve Chairman Jerome Powell downplayed the threat of inflation.
Powell said prices could take more than three years to meet the US central bank’s inflation targets. It was another sign that the Fed plans to look beyond any short-term inflation inflation and will likely keep interest rates stable for some time.
Fears about inflation have risen in recent weeks amid a sharp rise in bond yields, as policymakers debate another round of economic relief during the ongoing coronavirus crisis.
Winters, however, said he was not worried about short-term inflation. The StanChart CEO said the combination of ongoing “very accommodative” monetary policy and a “very significant” fiscal boost, especially in the US, could lead to a temporary rise in inflation.
“But for this to translate into real market volatility, another exogenous shock would probably be needed,” he added.
Technological concerns
When asked if rising technology stocks could affect wider markets if they wanted to fall sharply, Winters replied, “It’s possible. We all remember the dotcom bubble very well and when the bubble bursts, of course it hit the technology sector, dotcoms, very hard. “
“But it spread to the wider economy and some would say it even caused, with the retrospective advantage, a very mild recession, even though at that time it felt quite acute,” he continued.
“I think there’s still a very active debate about what the value of some of these tech stocks or tech giants is. When we look at the dotcom bubble tracking and the number of companies that felt bubbles at the time to have market values in excess of $ 1 trillion, who’s to say they weren’t grotesquely undervalued at the top of the dotcom bubble and not the other way around? ”Winters said.
Earlier on Thursday, StanChart reported a 57% drop in annual profit for 2020, ignoring analysts ’expectations.
The London-based lender said pre-tax profits reached $ 1.61 billion, compared to $ 3.71 billion in 2019 and an average of $ 1.855 billion from analysts ’forecasts compiled by the bank.
StanChart also restored its dividend and reaffirmed its long-term profit goals.