Soon hitting its ninth year, the current bull market is set to officially become the longest in history if it remains intact into August. But how long will it last, and what does it mean for investors and fund managers?
That is the question that is causing quite a bit of controversy and speculation in the financial markets. The optimists believe that a strong economic growth, persistently low interest rates, sensible monetary policy and new investment opportunities mean there will not be a downturn anytime soon. Even if there is the bubble, they predict that it will soon mature to result in increased employments rates, continued economic stability and amplified profits.
With global wealth rising rapidly, much of it is trickling into investment vehicles, from pension funds to sovereign wealth funds. Investors are pouring money into private equity in search of yield, driving near-record fundraising levels. Whilst it may sound good, due to the fact the markets have been generous for a pretty long time, the trees are getting stripped of the low-hanging fruit. On the spending side, managers are having a harder time finding attractive deals. With the record amount of dry powder in the market, many wonder where it can be successfully deployed.
In the US, the corporate profits have been on the rise for nearly eight years, hitting the all-time high. Making investments for the sake of investing isn’t an option, so where to now? This is when investors are likely to start looking at the markets of Europe, Japan, and many emerging markets, where the profits are rising strongly, but interest rates remain very low, creating new investment opportunities.
Although there aren’t any obvious signs of a potential downturn, the stock market officially went into correction territory at the beginning of February, down just over 10 percent from its record reached in January. If this is just a standard correction, then we are probably looking at another four months of struggle. If the losses extend into a bear market, then it could be 22 months before the financial markets recover.
Investors and fund managers alike need to get creative, both in terms of asset allocation and capital deployment, as well as making the necessary provisions for a potential market correction.
Still, some go as far as saying that the current conditions are resembling market fundamentals observed in the early 1980s, and that bubble will inevitably burst causing yet another market collapse. It is also believed that it could take an exogenous event, like a war, impeachment, or a natural disaster, to alter the ascending momentum the financial markets are experiencing. With the ever-increasing geopolitical risks, this is certainly something to watch out for.
No matter what beliefs one may have about the future of the capital markets, one thing is clear – investors and fund managers alike need to get creative, both in terms of asset allocation and capital deployment, as well as making the necessary provisions for a potential market correction.
All these key discussions and many more will be covered at SuperReturn US East 2018. We look forward to seeing you in Boston this June.