Stock markets could see sharp falls before the end of year as valuations have hit disproportionate levels, one strategist told CNBC’s “Squawk Box Europe” Thursday.
In the wake of the 2008 financial crisis, central banks around the world have pumped trillions of dollars into the global economy to boost lending and encourage growth. However, this massive market intervention has led to a sharp increase in stock prices — taking them to “epic bubble levels,” according to Paul Gambles, the managing director at Thailand-based advisory firm MBMG Group.
“We had a policy response to the global financial crisis (and) at that point stocks were cheap and they had an enormous tailwind behind them in terms of fiscal support,” he said. “This is quite a dangerous situation and it is creating a bubble, and that bubble has just got bigger and bigger and bigger … There isn’t any doubt now (that) in valuation terms we’re in epic bubble proportions, probably the biggest bubble of all time.”
Gambles added that markets could be experiencing a moment similar to 2007, just before the historic market crash. “We now think that there are conditions out there that are prime for that bubble to actually be pricked,” he added.
These conditions include unsynchronized global growth, tighter monetary policy and “chaos” surrounding U.S. politics with the administration’s tougher stance on global trade, according to Gambles.
However, Gambles noted that there were a range of outcomes for markets that were “probably wider than it’s ever been at any time in history.” “We could have a good stock market year, we could have a 20, 30, 40 percent plus correction,” he added.