Anxiety over asset bubbles in homes, Internet rising

Bloomberg

Fri, Nov 22, 2013 - Page 15

Asset bubbles are forming in Internet and social media stocks, as well as in the housing markets of London and China, according to the latest Bloomberg Global Poll.

Eighty-two percent of the responding investors, analysts and traders who are Bloomberg subscribers, said Internet and social media shares are either at or near unsustainable levels. Seventy-three percent said the same of Chinese house prices and 69 percent identified London homes as already or almost frothy. They were less concerned about US housing, with 31 percent seeing prices approaching or at excessive levels.

“Liquidity is still plentiful and central banks are reflating,” said London-based Societe Generale SA strategist Kenneth Broux, a poll participant. “Property is the obvious bubble candidate.”

The survey sounds the alert that five years since a credit- driven financial crisis, investors are spotting speculative excesses in a potential challenge to their portfolios and policy makers. Exuberance is more muted elsewhere as those surveyed tempered their optimism about the outlook for the world economy, equities and US assets since the last survey in September.

In the same month that Twitter Inc’s stock almost doubled from its market debut, 49 percent of those responding said Internet and social networking stocks are already in a bubble and 33 percent said they are on the verge of one. The Solactive Social Media Index has soared 57 percent in the last year.

As for property prices, those in China are viewed as unsustainable by 46 percent, and another 27 percent said they are close to being so. In London’s housing market, bubble conditions are seen by 41 percent and approaching them by 28 percent.

New home prices in China’s four major cities rose last month by the most since January 2011, while housing sales jumped 33 percent in the first 10 months of this year. In the UK capital, luxury homes will rise 23.1 percent through 2018, according to a report this month by broker Savills PLC.

Almost one-third of those contacted said US Treasuries are in a bubble and 27 percent said credit markets are at unsustainable levels. Record-low interest rates and asset-buying by the US Federal Reserve have helped restrain the 10-year US Treasury bond yield, with its high of the year barely at 3 percent and at 2.8 percent yesterday.

While only 20 percent said global stocks are in bubble territory, another 45 percent said they are close to being there. The MSCI World Index is up 26 percent from a year ago and this week reached its highest since 2007.

There is less concern shown toward emerging markets, where only 11 percent see stretched valuations and 58 percent said no bubble is forming.

Commentary about possible bubbles is mounting after monetary policymakers injected a wave of liquidity into the world economy to battle the 2009 recession and then drive the recovery. A sluggish rebound in economic growth has led to suggestions the easy money is instead finding its way into asset prices. McKinsey & Co’s research division calculated in a report published last week that major central banks have injected almost US$5 trillion to fight the financial crisis and its after-effects.

Seventeen percent said the world economy is deteriorating, the most since May, although about half maintain it is stable. US investors were the most pessimistic: more than one in five said the world economy is getting worse, compared with 15 percent of Europeans and 13 percent of Asians.

Thirteen percent of investors said the US economy is weakening, the most since January, while about a third called it stable and 54 percent said it is improving. US investors were again more downbeat.

The Organisation for Economic Co-operation and Development (OECD) this week cut its global growth forecasts for this year and next as emerging-market economies cool. The world economy will probably expand 2.7 percent this year and 3.6 percent next year, instead of the 3.1 percent and 4 percent predicted in May, the Paris-based OECD said.