DVFA survey: No general stock market bubble, but warning signs in individual segments.

Capital markets remain caught between technological euphoria, high valuations, and the question of possible excesses. The latest monthly question by the DVFA shows that the majority of investment professionals currently do not see a broad-based bubble forming in equity markets, but they do recognize clear signs of excessive valuations in individual segments.

73% of participants assess the current situation as a phase with excesses in certain market segments, without it yet being possible to speak of a general bubble. Only 16% see signs of a broad-based speculative bubble, while nearly 11% consider current valuations to be largely justified by fundamentals.

Valuations are assessed in a differentiated manner

With regard to the high valuations, particularly in the US technology sector, nearly half of the survey participants (49%) consider them to be generally justifiable despite the demanding valuation level, based on the expected earnings development. By contrast, 38% view the price levels as partly excessive, while only 13% speak of a clear overvaluation.

Parallels mainly in market concentration and individual valuations

When asked about possible parallels with earlier speculative phases, participants point in particular to the strong concentration around a few market leaders. 62% cite the dominance of individual companies as a key feature reminiscent of previous market excesses. More than half of respondents (52%) also refer to excessive valuations of individual technology stocks. By contrast, current earnings development and the actual economic relevance of the underlying technologies are seen as important differences compared with earlier bubble phases.

“Mega-cap dominance” is viewed critically

The increasing concentration of market capitalization among a small number of mega-cap companies is viewed critically. 55% of participants consider this development problematic, as it could impair market stability and make diversification more difficult. A further 31% see risks, but consider the development understandable given the market position of the companies concerned.

Long-term optimism prevails

For the coming two to three years, the overall outlook is predominantly optimistic. 41% of respondents expect technological innovations to enable significant long-term gains in productivity and prosperity, even though temporary excesses in capital markets cannot be ruled out. A further 30% anticipate a market correction in individual segments, without this leading to a comprehensive crisis. Only 17% expect a scenario resembling the course of previous technology bubbles.

“The results show that investment professionals assess the current market situation in a differentiated manner. While excesses are indeed being identified in individual areas, fundamental differences compared with previous speculative bubbles are also emphasized. In particular, the actual economic significance of new technologies and the high profitability of many tech companies play a decisive role in the assessment,” explains Roger Peeters, Deputy Chairman of the DVFA Executive Board.