Sceptics wrong about ‘timid’ bull market

Kleinwort Hambros chief investment officer (CIO) Mouhammed Choukeir has argued the “bull market can continue to grind higher”.

Despite the global uncertainty right now with geopolitics, Trump and Brexit, Kleinwort Hambros said the main question investors are asking is ‘can this bull market continue to rally?’

Describing the bull market as “uncharacteristically timid”, he said: “Bull markets don’t usually feel like this – in the ’90s, every day, every quarter felt like it was just getting better and better.

“Whether its companies coming in or earnings being strong – the ’90s felt like a good period and that led to the euphoric sentiment towards the end of that bull market.”

Although the current nine-year old bull market is longer than the average five-year run, in terms of returns, it has yet to exceed the level reached during the 12 to 13 year bull market through the ’90s, according to Choukeir.

He said: “In that bull market, returns were much higher than that average at about 500% – almost twice as much as what we have seen now.

“The message from that is that even though it’s a stretch bull market, we know that there are instances where the bull market can continue to grind higher.”

More importantly, the current bull market is not displaying the three typical characteristics that signal the beginning of a bear market: “Overvaluation, the beginning of economic slowdown and sentiment – the prevailing mood of optimism and perhaps even euphoria.”

The outlook now

Contrary to the sceptics who fear an impending market correction, “the valuation characteristics suggest that global equities are still presenting opportunities,” said Choukeir.

“Emerging market equities equally, even though they have had a strong rally – up about 30% this year, they are still not overly stretched.”

Meanwhile, the UK couldn’t be further away from an economic slowdown, he said.

“The global economy is growing, and central banks are looking to normalise their interest rate strategy and quantitative easing programmes. What we’re seeing is an uptick of activity economically.”

However, with this bull market, Choukeir said there has been a lot of scepticism and negativity around politics, the economy, and central banks.

“Those questions continue today – investors are still cautious, both retail and institutional investors, and are not necessarily getting euphoric.

“This suggests to us that this bull market could have further to run. It’s improved in the last 12 months and as that improvement continues – if we get to stages where it becomes overly optimistic, that’s the time to be weary of the bull market.”

Considering the three warnings to look out for, Choukeir added: “The bull market has clearly reached what we would call the latter stages or maturity but by our assessment, it doesn’t seem like the time to reduce risk aggressively.”

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