A small group of high-flying tech stocks are creating a market bubble on Australian Securities Exchange, echoing the conditions before the dot-com crash and the global financial crisis, investment house Perpetual has warned.
Subscribe now for unlimited access.
or signup to continue reading
Wisetech, Afterpay, Altium, Appen, and Xero have been market darlings on the ASX, with their share prices doubling on average over the past 12 months.
But James Holt, senior investment specialist at the $27.4 billion fund manager Perpetual Investments, on Monday said that the group of companies should be a "red flag" to investors that "at some point we're going to get a serious sell off".
"There's a real concern around these stocks," he told an Australian Shareholders Association event in Melbourne.
"They're very very popular, but we think... there's a great deal of danger here.
"This is a time that fear is low, greed is high, crazy decisions get made and often the worse decisions are made around this time of the cycle."
The WAAAX stocks were leading the share price-to-earnings ratio of the ASX (excluding the banks and resources sector) to spike to levels not seen since the before the bursting of the dot-com bubble in 2000, at around 21 times earnings, he said.
"The PEs (price to earnings multiples) of our growth companies are higher than anywhere in the world," Mr Holt said.
"We've gone a little bit crazy for these tech stocks just like we did in 2000. History's repeating."
The only other spike to that find of level was before the GFC when, inflated by property trusts, the ASX hit 18 times earnings.
In a report published last week, Canaccord Genuity analyst Owen Humphries said that the ASX's WANAAX stocks (which includes another ASX tech company Nearmap) had increased in value more than seven fold since 2015 - far outstripping growing in America's famed FAANGs index (Facebook, Apple, Amazon, Netflix and Google) at 2.2 times.
"The lower growth domestic environment has been the key catalyst for the incredibly strong performance generated by our ASX growth-orientated stocks," Mr Humphries said.
Mr Holt said US tech juggernauts Uber and Tesla were leading a global trend of companies listing on stock market before they were making money and with no clear path to profitability.
"But right now the market does not care, but they will eventually care when we have a significant correction," he said.
The US stock market was similarly overvalued, even when tech stocks were taken out, said Mr Holt, who also mentioned risks from high levels of corporate debt.
- SMH/The Age
