LONDON – Standard Chartered’s chief executive warned Thursday that stock market valuations seem to have reached unsustainable levels at a time he has described as “speculative hype”, warning that a technology-led sell-off is spilling over to others could sectors.
“There are signs that the broader stock market is foamy, whether it’s the various valuation multiples that suggest the markets are certainly falling short on some aspects,” Bill Winters, CEO of Standard Chartered, told CNBC . Squawk Box Europe “on Thursday.
“That doesn’t apply to banks, I’ll add very quickly. I’d say value stocks generally don’t look very fully valued right now. But that’s the nature of the speculative hype we’re in right now “he said added.
His comments come after US futures contracts pegged to the Dow Jones Industrial Average closed at record highs on Wednesday and Federal Reserve chairman Jerome Powell downplayed the threat of inflation.
Powell said it could take more than three years for prices to hit the Fed’s inflation targets. This was yet another sign that the Fed plans to look beyond a short-term inflation spurt and likely keep rates stable for some time.
Fears of inflation have risen in recent weeks amid a sharp spike in bond yields as policy makers debated another round of economic relief amid the ongoing coronavirus crisis.
However, Winters said he was not concerned about inflation in the short term. The StanChart CEO said the combination of continued “very accommodative” monetary policy and “very significant” fiscal stimulus, particularly in the US, could lead to a temporary spike in inflation.
“But for this to result in real market volatility, another exogenous shock would likely be required,” he added.
When asked if rising tech stocks could impact broader markets if they fell abruptly, Winters replied, “It is possible. We all remember the dot-com bubble very well, and when the bubble bursts Of course, it hits the technology sector, the dotcoms, very hard. “
“But it has had an impact on the economy as a whole, and some would say that in hindsight it actually led to a very mild recession, although it felt quite acute at the time,” he continued.
“I think there is still a very active debate going on about the value of some of these tech stocks or tech giants. If we look at the aftermath of the dot-com bubble and the number of companies that felt bubbling at the time, who can say that market values at the height of the dot-com bubble weren’t grotesquely undervalued and not the other way around? “Winters said.
Earlier Thursday, StanChart had reported a 57% drop in annual earnings for 2020, in line with analysts’ expectations.
The London-based lender said its pre-tax profit was $ 1.61 billion, compared with $ 3.71 billion in 2019 and the average of $ 1.85 billion in analyst forecasts made by the bank.
StanChart also restored its dividend and reiterated its long-term profit goals.