Managers’ fears for speculative retail investors
Platinum chief investment officer, Andrew Clifford, has warned of a “extreme mania” being demonstrated by investors in the market at the moment.
The Australian Securities and Investments Commission (ASIC) had already warned retail investors against playing in volatile markets earlier this year as activity had ‘heightened’ during COVID-19.
This was echoed by Clifford who said the current retail trading levels were worrying, particularly trading in the fast-growing technology companies.
Clifford said: “There have been significant changes in spending and working patters across economies. These changes, together with rapid and large increases in money supply, have unleashed a speculative mania in high growth companies and other beneficiaries of the changing environment, while the balance of the market remains mired in a traditional bear market.
“We believe extreme caution is warranted in regards to the market’s current ‘high flyers’ while opportunities abound elsewhere.”
He said, having seen the share price growth in the media, investors were under the impression that these fast-growing companies were great investments.
“This makes the current moment in time particularly worrisome. Prior to the pandemic, investors already held enthusiastic views of the prospects of many of the fast-growing companies. These views have now been reinforced even further by the additional boost to revenues they have received. As share prices move higher, this further reinforces the idea that these companies make great investments.”
Before investing, investors needed to establish whether the short-term picture justified the share price rise and whether the company was likely to turn profitable in the near future.
Clifford’s comments were echoed by Investors Mutual senior portfolio manager, Simon Conn, who said investors were being “driven by news flow” and ignoring the fundamentals of a company.
“We have people making the mistake of thinking because a stock is going up, that it is a good company and it will keep going up. We have also seen young people investing in stocks which they are familiar with such as Afterpay and Sezzle and not really looking at the fundamentals of those businesses. There’s a disconnect between the underlying fundamentals and the valuations,” Conn said.
“The PE for the technology sector has expanded dramatically and that’s not because of earnings growth, it’s been about news flow and a thematic around technology.
“It is important to look at valuations, sustainability, earnings streams, competitive moat and company management.”
AUTHOR
Laura Dew
Recommended for you
Outflows from an Australian private markets fund manager have caused FUM at Pacific Current to decline by $1 billion in the last quarter.
Former RIAA chief executive Simon O’Connor has joined the ethical advisory panel at U Ethical Investors.
Financial services leaders are “all cashed up with nowhere to grow” when it comes to M&A activity, according to Deloitte, with 90 per cent saying they have strong balance sheets ready for an acquisition.
As fund managers are urged to diversify their product ranges, they are finding a faster way to do this is via an acquisition of existing firms but experts say it is not without potential culture clashes.
