LONDON —The chief executive of Standard Chartered on Thursday warned stock market valuations appear to have reached unsustainable levels amid a period of what he described as “speculative hype,” warning it is possible for a tech-led sell-off to spill over into other sectors.
“There are indications that the broader stock market is frothy, whether it’s the various valuation multiples (that) would indicate that the markets are, certainly (in) some aspects, are toppish,” Bill Winters, CEO of Standard Chartered, told CNBC’s “Squawk Box Europe” on Thursday.
“That does not apply to banks, I will add very quickly. I would say value stocks generally don’t look like they are very fully valued right now. But that’s the nature of the speculative hype that we are in right now,” he added.
His comments come after U.S. futures contracts tied to the Dow Jones Industrial Average closed at a record high on Wednesday, and as Federal Reserve Chairman Jerome Powell downplayed the threat of inflation.
Powell said it may take more than three years for prices to reach the U.S. central bank’s inflationary targets. It was another sign that the Fed plans to look beyond any short-term bump in inflation and will likely hold interest rates steady for some time to come.
Inflation fears have risen in recent weeks amid a sharp rise in bond yields as policymakers debate another round of economic relief during the ongoing coronavirus crisis.
Winters, however, said he was not concerned about inflation in the short term. The StanChart CEO said the combination of ongoing “very accommodative” monetary policy and “very substantial” fiscal impetus, particularly in the U.S., could lead to a temporary pickup in inflation.
“But for that to translate into real market volatility would probably require some other exogenous shock,” he added.
When asked whether soaring tech stocks could impact broader markets if they were to abruptly turn lower, Winters replied: “It is possible. We all remember the dotcom bubble very well and when the bubble bursts, of course it hit the technology sector, the dotcoms, very hard.”
“But it spilled over to the broader economy and some would say it even led to — with the benefit of hindsight — a very mild recession, even though it felt pretty acute at the time,” he continued.
“I think there is still a very active debate over what the value is for some of these tech stocks or tech giants. When we look at the follow through to the dotcom bubble and the number of companies that felt bubblish at the time that have gone on to have market values in excess of $1 trillion, who’s to say that they were not grotesquely undervalued at the peak of the dotcom bubble and not the other way around?” Winters said.
Earlier on Thursday, StanChart reported a 57% fall in annual profit for 2020, missing analyst expectations.
The London-headquartered lender said pretax profit came in at $1.61 billion, compared with $3.71 billion in 2019 and the $1.85 billion average of analyst forecasts compiled by the bank.
StanChart also restored its dividend and reaffirmed its long-term profit goals.