We are clearly seeing a correction and tech bubble will burst’, warns top fund manager

A trader on the floor of the New York Stock Exchange (NYSE) in New York City. 

 Johannes Eisele/Getty Images

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Shruti Tripathi Chopra

September 4, 2020 8:46 pm

What does last week’s stock market seesaw mean? A correction is here and the “tech bubble” will burst, according to top investor Rob Arnott who is known as the “godfather of smart-beta” investing.

“We are clearly seeing a correction, Arnott said last week, pointing to the FANG+ stocks [Facebook, Amazon, Netflix, Google parent Alphabet and Microsoft among others] taking a beating recently.

“The FANG+ index was down 11% in just one-and-a-half  days”, the founder and chairman of the board of Research Affiliates, a global asset manager, added.

Hundreds of billions of dollars were wiped off the tech sector last week amid worries of a Nineties-style bubble. The tech-dominated Nasdaq Composite saw its worst decline since the period ending March 20 and its first drop after five consecutive gains. The US markets are shut today for the Labor Day holiday.

“It’s a bubble,” Arnott said. “Bubbles burst. The FANMAG bubble will be no exception.”

READ Beware of a big stock market correction, warns influential regulator in rare missive

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On Friday, Apple shares entered correction territory - defined as a decline of between 10% and 20% from a recent high.

“At its recent highs, Apple was worth more than the entire FTSE index. In other words, the one stock was worth more than the entire publicly traded British economy.

“It’s a fantastic company with great products and superb management. But, it will not produce more profits for its shareholders in the decades ahead than the entire London stock exchange,” the fund manager said.

Earlier this month, Arnott said that the lockdowns forced by the pandemic has fuelled “asset bubbles” that will bring pain further down the line.

“The big issues are the lockdowns, and the resulting trillions in fiscal and monetary stimulus, fueling asset bubbles. The lockdown has inflicted a human toll that dwarfs the damage of the virus,” he said.

When asked whether the global economy is at risk of repeating mistakes of the 2008 financial crisis, Arnott said: “No, it’s much worse than that.”