Threats to ‘exuberant’ share values

Rises in bond yields this year threaten stretched and “exuberant” valuations of stock markets, Davy credit expert Donal O’Mahony has warned, writes Eamon Quinn.

In its monthly debt digest, Mr O’Mahony said that even as economic fundamentals remained “solid” and “euphoria” in markets was held back last year, valuations nonetheless look “well-stretched, and bond markets threaten”.

He said that recent price moves resemble “the melt-up stage of a protracted equity bull market, albeit with market internals still reassuring, leverage indicators relatively subdued, and investor sensibilities more optimistic than euphoric, the “bitcon” (sic) craze excepted”.


It comes after a week when US government bonds have slid, amid fears of a market rout.

However, there are mixed views on whether the bond market bull run is drawing to an end. Janus fund manager Bill Gross has declared the end of the bull market, but he doesn’t foresee dramatic losses.

“We’re simply not at the point when we’re looking over our shoulder once an hour to see what’s coming at us next,” said Jim Vogel, executive vice president at FTN Financial Capital Markets.

Meanwhile, two new reports are upbeat on the outlook of the Irish economy. In its latest quarterly bulletin, Merrion Capital chief economist Alan McQuaid forecast GDP leaped by 7% last year and will grow 5.5% in 2018, meaning the unemployment rates will fall significantly below 5.5% by the end of the year.

Nonetheless, he predicts that the gap in economic prosperity and activity will widen between the Dublin region and other areas and that housing will continue to be the political “hot potato” and prices will likely rise by double-digit increases through 2018.

“Residential property prices are only going one way in the short-term until the supply issue is resolved.

“Housing has now overtaken health as the main political hot potato, and the key focus in budget 2018 was on measures- initiatives that should help alleviate the problems going forward, but things won’t change overnight.

“One can argue until the cows come home as to the merits of the proposals announced, but at least the Government has taken a step in the right direction, with an acknowledgment that something dramatic needs to be done and sooner rather than later,” Mr McQuaid said.

In its new weekly bulletin, Simon Barry, chief economist at Ulster Bank in the Republic said: “Household income continues to rise at a solid pace, in turn supporting strong growth in retail sales and house prices”.


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