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Top fund manager warns of an “unexpected shock” for investors in 2020

James Mickleboro

Investors ought to approach 2020 with caution according to the chairman of one of Australia’s leading investment companies.

A shareholder update released this morning reveals that WAM Capital Limited (ASX: WAM) chairman Geoff Wilson AO is concerned that an “unexpected shock” could be coming.

What should you expect in 2020?

Mr Wilson notes that asset values have inflated materially after a year of highly accommodative monetary policy.

He said: “Record low interest rates and ‘easy money’ policies have inflated asset values and supported the longest equity bull market in US history.”

WAM’s chairman expects this trend to continue over the next few months. “We expect global monetary authorities to continue expanding their balance sheets for at least the first half of 2020 and are positive about the outlook for equity markets during this period,” he said.

However, Mr Wilson appears concerned with the impact this is having on investors and what might be around the corner.

“The core behavioural impact of low interest rates is twofold – investors demonstrate greater demand for yield and an increased appetite for risk. Across major markets the “search for yield” has led to a mispricing of assets and low rates have pushed investors up the risk curve into less liquid securities. The combined effect could amplify the impact of any unexpected shock.”

Is the bull market coming to an end?

WAM’s chairman then suggested the end of the bull market could be in sight.

He notes that “company valuations have expanded significantly despite little-to-no-earnings growth.” This could be a sign that we are ”in the later stages of this bull market.”

In light of this, Wilson urged investors to be vigilant.

“Investors should be particularly vigilant when investing in this environment and remain focused on the risk inherent in the supportive conditions that have driven asset prices higher,” he concluded.

The post Top fund manager warns of an “unexpected shock” for investors in 2020 appeared first on Motley Fool Australia.

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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020