ALLOCATION PERSPECTIVE : Bull market or bubble ?
Market analysis by Franck Nicolas, Head of Investment and clients solutions.
"US equities have posted annual gains of more than 24% on a total-return basis over 5 years, i.e. cumulative gains of 210% since the low point in March 2009. Although not yet the case, but it could be in less than one year (in April 2015 to be precise), this rally would become the third-longest bull market in history.
However, the specter of the internet bubble which marked the end of the 1990s is looming once again. Tech giants are wielding their overabundant liquidity and driving the price of unlisted start-ups through the roof, while valuations among certain NASDAQ stocks have also reached excessive levels. Despite the current sector rotation towards defensives, tech stocks are still trading on high valuation multiples.
Total market capitalization is thus dangerously close to the March 2001 peak, expressed as a percentage of GDP (142% at the moment). It would therefore appear normal to question the sustainability of the rally. Of course, since that period, US companies have generated a greater proportion of their profits abroad and US Gross Domestic Product should therefore not be used as their sole yardstick. However..."