Eugene Barbaneagra told Proactive that 2020 has seen an acceleration in the inflow of new money into asset bubbles and “speculative investments, including in unprofitable hype stocks,” which could all reverse. when the bubble finally bursts
Overpriced growth stocks in markets around the world are heading for a reversal similar to the stock market crash of the early 2000s, according to an investment manager.
Eugene Barbaneagra, portfolio manager in the traditional strategies group of SEI Investments Co, told Proactive that since the global financial crisis in the late 2000s, markets have experienced “an unprecedented era of new currency creation, which inevitably found its way into asset bubbles, ”adding that the momentum accelerated further in 2020.
“Much of the trillions of stimuli have ended up in speculative investments, including the trendy, unprofitable stocks that now populate much of the growth index. As the world returns to normal, the stimuli will be reduced and the energy supporting this bubble will be cut off, ”said Barbaneagra.
“All the bubbles are bursting. When investors, or, in this case, speculators, stop discounting future cash flows, the hype is their last hope: to attract new money and drive up prices. For a while, it works and gets stronger, until it no longer works, ”he added.
Regarding trendy stocks that could be vulnerable to sharp reversals in value when the bubble finally bursts, Barbaneagra named the “unpaid with big promise” as the most at risk.
“These actions always carry a significant chance that they will never be able to make their business profitable… the excitement attracts competition, which in turn lowers margins or offers a better solution, rendering the technologies that generate growth obsolete. Paying for the future is a losing game, because the future is uncertain and the high price we are paying for it is even more so. At different times, many of the preeminent growth stocks are in fact profitable and have a seemingly unwavering grip on their markets – until they don’t, ”the portfolio manager said.
Regulation has also been pointed out as a major risk for this type of business, with Barbaneagra stating that although these entities may be slow to act, “ultimately and inevitably they act” like “no government wants to be ruled by corporate monopolies “.
Headwinds ahead in the post-pandemic world
Looking into the second half of 2021 and beyond, Barbaneagra said that developments such as the fight against inflation by central banks, increased consumer activity and regulatory developments will all serve as “winds. opposites for overpriced hype actions ”.
“As much as we are convinced of truisms like long-term buy cheap rather than buy high, buying profits is better than buying losses, and diversifying is better than focusing, sentiment is all that matters in the short term and rationally predicting irrational sentiment is almost impossible, ”he said.
Barbaneagra’s comments, if correct, could cause problems for a number of stocks which have seen sharp increases in market value although they have yet to manage to turn a profit.
Notable names among unprofitable growth stocks include Social Media Company (), Workplace Chat Platform (), and Rideshare App ().