Jeremy Grantham, British legendary co-founder and chief investment strategist of Grantham, Mayo & van Otterloo has a knack for calling equity bubbles. Over the last 33 years, he has called three of the biggest bubbles –
- Exited Japan in 1987, well before it went into a downward readjustment for decades
- Tech bubble of early 2000
- Global Finance Crises of 2008
On current COVID2019 situation, as per him –
- Event is unprecedented and highly uncertain and that’s why he and his team is nervous
- Current stock markets and the underlying economy are indicating one of the biggest mismatches in the history
- Stocks are historically expensive and the economy is historically bad
- Unemployment, dismal GDP projections with uncertainty around revival, thousands of bankruptcies, vaccine uncertainty, huge quantum of corporate and government debt are the reasons for the concern. He is further skeptical of the idea that a vaccine for the virus will serve as a cure-all for the economic damage that’s already been done.
- A quick V shape recovery is highly unlikely
Consequently, he has reduced net equity exposure in their benchmark fund from 55% to closer to 25%.
Whether he is correct this time – only the time will tell… However, he has surely raised the most valid concerns.
One thing is for sure – no pundit as of now knows anything – no one can quantify how much of the damage is already done, for how long it will further continue and what would be the path to recovery.
With regard to the Indian economic situation, you may want to read one of our previous post: COVID2019 and stock investing – Part 2 – Critical factors that you must consider- dated April 22, 2020
You would surely find it helpful !