'Markets can't price risk properly'


The monetary and fiscal policy environment that has evolved as a result of the pandemic makes it difficult to price risk in the market, according to the guests on the latest edition of the FTAdviser podcast.

Gerard Lyons, chief economic adviser at Netwealth, a discretionary wealth management firm, said: “Even years after the global financial crisis it is clear that as interest rates fall, markets are not pricing for the risks that are there.

"And with the pandemic, that showed markets had not been pricing risk well at all.”

Ian Heslop, head of systematic equities at Jupiter, said: “Some assets which may look expensive, some of the growth type equities for example, are priced off long-term bond yields and interest rates, and those are at record lows, which is positive for those stocks.

"And the traditional measures one uses to value equities, like price to book, maybe are not that relevant when rates are this low.” 

Meanwhile Nathan Sweeney, multi-manager fund manager at Architas, said markets looked expensive relative to history.

But, he said, "that data is very skewed because earnings have just fallen off a cliff, but those earnings will recover for most firms and with bonds very expensive, equities look to be the best way to be involved in that.”  

You can listen to the podcast by clicking on the link in the image above.