{"text":[[{"start":5.34,"text":"The writer is global head of macro investing at Janus Henderson Investors"}],[{"start":10.84,"text":"Investors now equate the financial markets with the prediction markets. Something seems terribly wrong."}],[{"start":16.92,"text":"The financial markets play a critical role in the global economy because they act as the main conduit for capital formation. Companies issue debt and equity and invest the proceeds in plant, equipment and jobs. Investors receive the benefit of that capital formation as their equity shares appreciate, their dividends compound and interest payments are collected on the debt."}],[{"start":39.64,"text":"Despite their claims to the contrary, prediction markets act as mere gambling sites. It would be a stretch to say they somehow stimulate the economy and expand economic resources."}],[{"start":50.24,"text":"Yet, a recent study by Northwestern Mutual Life found that 40 per cent of Americans were investing or considering participating in the prediction and cryptocurrency markets. That gambling mentality now seems firmly embedded in the equity market, and such extreme risk-taking is a regular feature of financial bubbles."}],[{"start":69.72,"text":"Our research has shown that financial bubbles have five common characteristics: 1) available liquidity, 2) increased use of leverage, 3) increased turnover, 4) democratisation of the market and 5) record new issues."}],[{"start":85.8,"text":"The current AI mania certainly demonstrates all five characteristics. The Federal Reserve’s hesitancy to raise interest rates has kept financial conditions remarkably easy. Financial conditions have begun to somewhat tighten as stock and bond volatility has increased, but conditions remain loose by historical standards. Liquidity remains abundant."}],[{"start":107.32,"text":"Rampant use of leverage in US markets now seems the norm. So-called margin debt to buy shares is accelerating relative to credit card and mortgage debt, and options trading volume is at record levels. Trading volumes have skyrocketed. On the Nasdaq, they have never been higher than during the recent bull run."}],[{"start":126.24,"text":"Many observers have commented that individual investors are playing a larger role in the markets and the percentage of equities of household net worth is indeed at an all-time high. But BofA Securities shows that individual investors’ equity exposure is concentrated in risky, more volatile stocks. Given the rising leverage to build these positions, this sounds more like long-shot gambling than prudent savings for the future."}],[{"start":151.02,"text":"Record equity IPO issues and enormous bond issuance suggest the AI boom is sucking capital away from the remainder of the global economy. Companies used to gauge the success of a bond offering by the interest rate spread over government bonds that they’d have to pay. Today, though, technology-related bond offerings are deemed successful by the size of the issue with little regard for the accompanying interest rate."}],[{"start":175.2,"text":"Such a speculative environment seems to be fostering the extinction of true fundamental growth investors. Exciting stories and momentum have replaced sober fundamental assessments."}],[{"start":186.04,"text":"We screened the global equity market for “super growth” companies, ie, those companies with projected three- to five-year earnings growth of 25 per cent or more. There are presently more than 230 such companies of varying market capitalisations spanning many industries, and nearly 75 per cent are non-US."}],[{"start":205.2,"text":"In addition, non-US growth stocks currently sell at nearly a 30 per cent discount to US growth stocks. The MSCI All Country World index ex US growth stocks currently has a trailing PE ratio of about 20 times versus 29 times for the MSCI US Growth index."}],[{"start":222.76,"text":"One might expect fundamental growth investors to overweight non-US stocks given those growth and valuation characteristics, but that does not appear to be the case. According to Bloomberg, the 10 largest US-based actively managed global growth mutual funds currently have an average non-US equity allocation of 28 per cent. That is well under the 35 per cent share that non-US stocks have of the market capitalisation of both the global growth and overall global equity universes. Our analysis of data from the Federal Reserve and from the Investment Company Institute suggests individual investors’ portfolios are also similarly underweight to non-US stocks, with allocations between 15-25 per cent."}],[{"start":264,"text":"Some might infer that I am bearish given my concerns about a market bubble. However, I view the risky momentum approach to equity investing and the overlooking of longer-term fundamental growth opportunities differently. This might present a once-in-a-career investment opportunity. That doesn’t sound at all bearish to me."}],[{"start":281.2,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1794468534_9572.mp3"}