The rise of global share markets over the past 6 or so months has been incredible to watch, to say the least. After bottoming out on 23 March, the S&P/ASX 200 Index (ASX: XJO) has risen by more than 33%. Things have been even more excited over in the United States. The Nasdaq Index is up more than 70% over the same period and is now at record highs. The flagship S&P 500 Index isn't quite as enthusiastic but is still up more than 43% since 23 March. But could this US and ASX share mania be at a turning point?
The dangers of ASX share mania
While many investors have been cheering these gains on, one ASX fund manager isn't quite as excited and is starting to become worried.
Platinum Asset Management Ltd (ASX: PTM) chief executive Andrew Clifford is warning of "prices loaded with danger", according to reporting in the Australian Financial Review (AFR).
Platinum is one of the ASX's most respected value-orientated fund managers, despite a few recent years of struggling performance. Mr Clifford says global investors are walking a tightrope between "a late 1990s-style blow-off" and an "old-fashioned bear market". He said:
I suspect very much that the extraordinary valuations we're seeing in growth stocks are fundamentally a part of what is in every good bull market: there's a great story, there's too much money and our own human condition goes to work of over-extrapolating just how good these stories are.
While not ruling out owning growth shares himself at the right price, Clifford notes that the Nasdaq Index's rise has been partly enabled by earnings multiples' stretching from 19x earnings to 28x since 23 March – an increase of roughly 50%.
He sees this as a consequence from the massive injections of fiscal and monetary stimulus that central banks around the world have been engaging in, which Clifford notes will probably result in an inflationary environment at some point.
Is it time for ASX investors to be worried?
I do think Mr Clifford's comments are worthy of consideration today. We are seeing some truly extraordinary moves, both on global markets and on the ASX. It is hard to fathom why the US markets are at all-time highs in the midst of one of the worst global recessions in living memory.
That doesn't mean the end is nigh though. Mr Clifford rounded out his remarks by saying: "We may be weeks or months away from an end in this mania, it doesn't mean that that doesn't end 20 or 30 per cent higher".
So what should ASX investors do next? Well, we all know that investing is a bumpy ride, replete with both periods of euphoric gains and of devastating crashes. I think imagining how you would feel and react to a market correction or crash is a very important consideration right now. If you're fine with volatility, then carry on by all means. But if you feel like you couldn't stomach a serious setback in your portfolio, the time to take money off the table is now, in my view.
