Why most experts think share prices will keep on rising
Fears of a stockmarket bubble don't appear to be putting off some heavyweight investors from betting that the good times will continue to roll throughout 2018.
The latest Bank of America Merrill Lynch (BoAML) fund manager survey shows that a majority of investors are now expecting the peak in equity markets in 2019 or beyond. That's quite a turnaround from the findings just a month ago, when the view was that the top will be reached in the second quarter of 2018.
The survey, which is based on responses from 213 panellists with $591 billion (£429 million) of assets under management, will fuel fears in some quarters about overstretched markets and valuations. Fund manager Neil Woodford has been warning for some time that there are echoes of the tech bubble in the current performance.
Last month, he told the Financial Times: "Investors have forgotten about risk and this is playing out in inflated asset prices and valuations."
But the prospect of one last big surge for markets has been given weight by the resilient start to the year, and optimism in the BoAML survey that global corporate earnings will continue to show improvement.
Allocation to equities jumped to two-year highs in the survey, with investors now the most overweight relative to government bonds since August 2014. Meanwhile, the number of professional investors taking out protection against a sharp fall in equity markets in the next three months fell to its lowest since 2013.
Michael Hartnett, chief investment strategist at BoAML, said: "Investors continue to favour equities. By the end of Q1, we expect peak positioning to combine with peak profits and policy to create a spike in volatility."
The view that one of the longest bull market runs in history has further to go has been supported by veteran fund manager Jeremy Grantham, who knows a thing or two about bubbles, having called the top of markets in both 2000 and 2008.
The British-born chief investment strategist for GMO in Boston warned earlier this month that the likelihood of a melt-up — or end phase of a bubble — taking place within the next six months to two years was more than 50%.
If this happens, the chances of a subsequent bubble break or melt-down are extremely high, at more than 90%. His personal view is that the slump is likely to be in the magnitude of some 50%.
For individual investors willing to speculate, Grantham recommends a small hedge of some high-momentum stocks primarily in the US and possibly including a few of the obvious candidates in China.
He said: "In previous great bubbles we have ended with sensational gains, both in speed and extent, from a decreasing number of favourites. This is the best possible hedge against the underperformance you will suffer if invested in a sensible relative-value portfolio in the event of a melt-up."
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.