Bitcoin, Tesla and US technology stocks were the two assets deep in the bubble territory indicated by Deutsche Bank

Bitcoin, Tesla and US technology stocks : Deutsche Bank recently conducted a survey of over 600 market professionals and almost 90 per cent of the participants agreed either strongly or partially that there were bubbles in financial markets. Among survey participants, a large majority felt that cryptocurrency Bitcoin and US technology stocks were the two assets deep in the bubble territory. Tesla is definitely among the list.

Bitcoin shows all the price action of a huge bubble. From its trough in 2019, it is up 1000 per cent and in a parabolic fashion. Given the difficulty in valuing Bitcoin, the regulatory risks involved and the daily volatility, buyers beware.

Bitcoin apart, for the US technology space, the outperformance of the mega caps is well known. The top 10 mega caps now account for 30 per cent of the S&P 500, it was 10 per cent in 2010. The 10 mega caps have appreciated 3.5x in the last six years, the S&P 490 (ex mega caps) has only grown 50 per cent in this time. However, this indicates bubble behaviour. The price action is much more exaggerated for the smaller SaaS companies, unprofitable tech stocks and recent initial public offerings. They seem to be in a full-blown buying melt-up driven by retail flows. Retail trading volumes have exploded, put/ call ratios are at cyclical lows and individual investor surveys show high levels of bullishness.

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What will change my mind is the inability of central banks to keep yields in check, or a series of mutations, which render the vaccines ineffective. One would then be looking at a double-dip in terms of another global recession. All bets would be off. There would be no V-shaped or any-shaped recovery in that scenario. This would kill markets; we need strong earnings to compensate for some inevitable multiple-fade. Strong earnings are dependent on economic normalisation. Unless the vaccines work, there will be no normalisation. India is past the phase of multiple expansion, driven by ultra-easy financial conditions. India needs earnings to kick in now for the broad markets to sustain. This is true of the US at least. Emerging markets have a path to do well in the coming decade, more on that in another article.

It makes sense to start taking money off the table at least from Bitcoin, EV space, low quality/high beta mid-cap tech names in the US. Redeploy capital into international markets, EM and more value-oriented equity names. One needs to move away from the more highly valued parts of the market. Make your portfolio more global and value-oriented.