LONDON – Standard Chartered’s chief executive warned on Thursday that stock market valuations appear to have reached unsustainable levels amid a period of what he described as ‘speculative hype’, warning that a tech-led sell-off could spill over to others sectors.
“There is some evidence that the broader stock market is frothy, whether it be the various valuation multiples that would indicate that the markets are, certainly (in) some aspects, toppish,” Bill Winters, CEO of Standard Chartered, told CNBC’s Squawk Box Europe “on Thursdays.
“That’s not true for banks, I’ll add very soon. I would say value stocks generally don’t look like they are highly valued right now. But that’s the nature of the speculative hype we’re in right now.” , he says. added.
His comments come after U.S. futures contracts pegged to the Dow Jones Industrial Average closed at a record high on Wednesday, and when Federal Reserve Chairman Jerome Powell downplayed the threat of inflation.
Powell said it could take more than three years for prices to reach the US central bank’s inflation targets. It was another sign that the Fed intends to look beyond any short-term inflation and is likely to keep interest rates stable for some time.
Fears of inflation have heightened in recent weeks amid a sharp rise in bond yields as policymakers debate another round of economic easing amid the ongoing coronavirus crisis.
However, Winters said he was not worried about short-term inflation. StanChart’s CEO said the combination of continued “very accommodative” monetary policy and “very substantial” fiscal impulses, especially in the US, could lead to a temporary rise in inflation.
“But translating that into real market volatility would probably require another exogenous shock,” he added.
Technical concerns
When asked whether rising technology stocks could affect broader markets if they fell abruptly, Winters replied, “It’s possible. We all remember the dotcom bubble well and when the bubble burst, it naturally hit the tech sector, the dotcoms., very difficult. “
“But it spilled over into the broader economy and some would say it even led to – in hindsight – a very mild recession, even though it felt quite acute at the time,” he continued.
“I think there is still a very active debate about what the value is for some of these technology stocks or technology giants. Looking at the sequel to the dotcom bubble and the number of companies that felt bubbly at the time, on market values of more than $ 1 trillion, who says they weren’t grotesquely undervalued at the height 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, lacking analyst expectations.
The London-headquartered lender said pre-tax earnings were $ 1.61 billion, compared to $ 3.71 billion in 2019 and the bank’s average of $ 1.85 billion in analyst forecasts.
StanChart also recovered its dividend and confirmed its long-term profit targets.