Markets set to fall further as economic fundamentals are worse than 2007, GMO’s Grantham says

A pedestrian walks past a giant screen showing a stock chart, in Shanghai, China August 3, 2022. REUTERS/Aly Song/File Photo

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Sep 8 (Reuters) – Financial markets are set to brace for further pain as global economic health is at its most precarious level in years due to stubborn inflation, hawkish central banks and geopolitical tensions, a said veteran investor Jeremy Grantham on Wednesday evening.

“This is a time that seems more dangerous in the global economy than even the housing bubble craze of 2007,” Grantham, co-founder and chief strategist at asset manager GMO, told the Reuters Global Markets Forum. (GMF).

Pockets of highly overvalued assets, which Grantham called “superbubbles”, peaked early last year, he said.

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Markets will now have to deal with collapsing valuations of “hyper-inflated” growth stocks, inflation and potential turbulence in global housing markets, as rising interest rates put pressure on owners, he said.

“The deterioration in global fundamentals looks absolutely shocking.”

Global stocks (.MIWD00000PUS) have fallen 20% year-to-date, while the high-growth Nasdaq Composite has fallen 24%.

The economic and market turmoil will likely test the resolve of global central banks to fight inflation through monetary policy tightening, Gratham said.

“(Central banks) will be scared, maybe they will do what they can.”

Based on its current trendline, Grantham thinks the S&P 500 (.SPX) could be trading around 3,000 points in a year from its current level of 3,979.87, but notes that it could easily heading “decently lower”.

Inflationary pressures are likely to persist, Grantham said, due to economic disruption from climate change, a shrinking global labor force and limited raw material resources.

This will put further pressure on stock returns, he noted.

“People forget to adjust the S&P for inflation…your assets are worth 9% because of inflation last year.”

“That makes a marginal bear market a pretty serious bear market,” Grantham said.

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Reporting by Lisa Pauline Mattackal in Bengaluru and Divya Chowdhury in Mumbai; Editing by Sherry Jacob-Phillips

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