It is not a question of whether the tech bubble will burst, but when, Amundi CIO Pascal Blanqué warned again. According to him, the bubble will burst as soon as interest rates rise.
Blanqué spoke about this during the outlook for 2022 that he, deputy CIO Vincent Mortier and head of research Monica Defend presented to journalists on Wednesday.
It is not the first time Blanqué has warned of a bubble in tech. Last year, he did the same during Amundi’s outlook meeting. At the time, he said he foresaw a tipping point towards a different macro regime, prompted by aggressive policy measures by governments and central banks combined with the advent of the vaccine. In his view, both austerity and corporate profits rising above wages would eventually disappear, as would globalisation. Deadly for tech stocks, the investor said at the time.
He still speaks of under-investing in the old economy and over-investing in tech.
Allocate to value
His advice is to allocate more to value stocks. Blanqué is convinced that we are only in the early stages of the outperformance of value as a factor, he said on Wednesday. He also suggested holding on to some “dry powder” to invest in the new regime.
Deputy CIO Mortier added that more and more companies are not profitable, at least not for the long term. “They are valued on promises and on ultra-low interest rates forever. Better to reallocate your assets to value stocks, dividends. Make sure you are not too late!”
He suggested also reserving a spot for emerging-market equities, after the blows they took earlier. “Most emerging markets are starting to open up again,” said Mortier. “We believe it will soon be time to add some EM again. Don’t forget India, which is often forgotten but very interesting.”
He prefers equities, but there are also opportunities on the bond side in emerging markets, especially in local currency.
Losing out
On long-dated bonds, Mortier said holders would most likely lose out. Blanqué, for his part, argued that bonds are no longer the dominant diversifier as the correlation between equities and bonds becomes positive. “Investors should look to other options, such as commodities, for that role.”
ESG, finally. A subject that investors cannot ignore anyway, but Blanqué also pointed out two ways in which investors can approach this subject. Firstly, as a pool of risk factors, some of which will pan out. Secondly, as a source of inefficiency. “That creates alpha, as this market too will become more and more efficient as time goes on. Until ESG investing is mainstream.”