Risky assets such as equities are not yet in bubble territory, Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer said Monday.
Talking to CNBC Europe’s “Squawk Box” about the risk of asset-price bubbles, Oppenheimer said an inevitable consequence of a having interest rates near zero was that many investors across the world were pushed up the “risk curve.”
“That could result in ultimately risky assets becoming overvalued like probably other asset classes,” he said. “It doesn’t look clear to me that risky assets like equity markets are yet in that bubbly territory.”
Fuelled by a 1 trillion euro ($1.08 trillion) asset-purchase program from the European Central Bank, European stocks markets have soared this year, with the pan-European Euro Stoxx 600 Index up some 17 percent, while government bond yields in many parts of the euro zone have hit record lows.
In the U.S., the blue-chip Dow Jones stock index and broader S&P 500 have seen record highs this year, helped by growing optimism about the outlook for the U.S. economy. Last week, the tech-heavy Nasdaq hit a 15-year peak.
Stocks received a further boost last week when the U.S. Federal Reserve indicated that interest rates would remain low for some time, even if they are lifted later this year. The Fed’s key interest rate is just 0.25 percent, a level it has held since 2008 when it was cut amid the global financial crisis.
Traders work on the floor of the New York Stock Exchange.
Not everyone is as optimistic as Oppenheimer when it comes to talk of a bubble, however.
St. Louis Federal Reserve President James Bullard told CNBC he was concerned that a backdrop of low interest rates could fuel a sharp rise in the value of assets.
“Interest rates are going to be low – is that going to feed through into an asset-price bubble of some kind over the next couple of years?” he said. “The U.S. has been plagued by massive bubbles in the last two decades – the tech bubble and a housing bubble. The second one caused a macro economic disaster, so that is a massive concern going forward.”
The worry is that when an asset rises quickly in value, it risks becoming inflated and vulnerable to a crash that could have wider implications for financial markets.
Asked whether he thought government bond markets were in “bubbly territory,” Oppenheimer said: “I think government bond markets are reflecting very weak fundamentals, but in our view, yields are too low especially in Europe.”
“Bonds are overvalued, which is why we prefer equities,” he added.
Germany’s benchmark 10-year Bund yield hovered at about 0.18 percent on Monday – it has fallen about 145 basis points over the past year and more than 300 basis points over the past five years.