LONDON – Standard Chartered’s chief executive warned on Thursday that stock market valuations appear to have reached unsustainable levels amid a period he described as “speculative hype”, warning that a sale of technology to spread to other sectors.
“There is evidence that the broader stock market is frothy, whether the multiple valuation multiples (which) would indicate that the markets are certainly (in) some ways, are confused,” said Bill Winters, CEO of Standard Chartered, to the CNBC’s “Squawk Box Europe” on Thursday.
“This does not apply to banks, I will add very quickly. I would say that value stocks generally do not seem to be fully valued now. But that is the nature of the speculative hype we are in now,” he added.
His comments were made after US futures contracts linked to the Dow Jones Industrial Average closed at a record high on Wednesday, and while Federal Reserve Chairman Jerome Powell played down the threat of inflation.
Powell said it could take more than three years for prices to reach US central bank inflation targets. It was another sign that the Fed plans to look beyond any short-term increase in inflation and is likely to keep interest rates stable for some time.
Fears of inflation have soared in recent weeks amid a sharp rise in bond yields, while lawmakers debate another round of economic relief during the coronavirus crisis.
Winters, however, said he was not concerned about inflation in the short term. The StanChart CEO said that the combination of a “very accommodating” monetary policy in place and a “very substantial” fiscal momentum, especially in the U.S., could lead to a temporary increase in inflation.
“But for this to translate into real market volatility, it is likely that some other exogenous shock will be needed,” he added.
Technology concerns
When asked if rising tech stocks could impact broader markets if they fell sharply, Winters replied: “It’s possible. We all remember the dot-com bubble very well and when the bubble bursts, of course it hit the technology sector, dot com, very difficult. “
“But it has spread to the economy as a whole and some would say it even led to – with the benefit of a retrospective – a very mild recession, although it seemed quite acute at the time,” he continued.
“I think there is still a very active debate about what the value of some of these stocks or technology giants is. When we look at the evolution of the dot-com bubble and the number of companies that were bubbling up at the time because they had market values in excess of $ 1 trillion, who can say that they were not grotesquely devalued at the peak of the dot-com bubble and not the other way around? “Said Winters.
Earlier on Thursday, StanChart reported a 57% drop in annual earnings for 2020, losing analysts’ expectations.
The London-based lender said pre-tax earnings reached $ 1.61 billion, compared with $ 3.71 billion in 2019 and an average of $ 1.85 billion from analyst projections compiled by the bank .
StanChart also restored its dividends and reaffirmed its long-term profit targets.