Asian shares fell on Wednesday and oil prices hit lows not seen since June after a rout in technology shares sank Wall Street for a third consecutive day and a major drugmaker delayed testing of a coronavirus vaccine.
Kevin C Smith, CFA-Founder, CEO & CIO of Crescat Capital spoke to CNBC-TV18 to throw light on the road ahead for the global markets.
While giving his thoughts on the US markets Smith said, “We certainly think this is beginning of the downturn, not just a technical correction, there is a lot of technical aspects to why we think this is a beginning of a bigger downturn.”
He further added, “Talking about the VIX, recently the VIX was really over-weighted for a market that was also going up especially the big tech stocks in the NASDAQ and NASDAQ 100 here. It is the tech stocks that were really getting pretty frothy and I can talk about the few of the other indicators that were seen there. We think there is - you talked of the valuations that we have noted and the market is truly record overvalued here in the US, higher than the tech bubble. Valuations are higher than in 1929 and so we think it is the beginning of something.”
When asked what changed overnight in the last four days in the tech space, “There are some extreme imbalances and one of them is - ratio. It is the lowest ratio since the tech bubble, since the peak of the tech bubble. We had some kind of issue that we had in 2000 with tech stocks trading at 10, 20, 30, 40 - 50 times revenues and in some cases even more and even higher valuations that we had in the tech bubble.”
He also said, “But this imbalance has been fed recently by some whales. One of the whales has been noted in the media is being SoftBank and they have been executing this long options strategy in big tech stocks and there is a lot of other large hedge funds that have been piling on to this trade as well, and at the same time as the retail investors have been buying tech stocks options.”