22 November 2023
Inflation fears and growing concern over the situation in Europe should push down historically market valuations to more normal levels, says Touch Ventures CEO Hein Vogel.
Inflation fears and growing concern over the situation in Europe should push down historically high market valuations to more normal levels, says Touch Ventures CEO Hein Vogel.
Speaking on Reach Markets’ The Insider: Meet the CEOs session this month, Mr Vogel said the enthusiasm and freely available money that pumped valuations up in 2021 are beginning to wane amid rising uncertainty.
Replacing them is growing concern about inflation risks, how the world will operate after the immense changes triggered by COVID, and the “global political uncertainty” spilling from Russia’s invasion of Ukraine.
“Over the past couple of months we’ve seen public market valuations correct quite significantly, particularly in the technology sector,” he said.
“So while there’s still a lot of capital available in the private market, we hope to see valuation expectations becoming a bit more realistic.”
Share market valuations broke numerous records last year, and research by Yale economist Robert Shiller showed the S&P 500 was more expensive in July than it has been in 96% of all quarters for the previous 141 years.
Mr Vogel noted Touch Ventures – an Afterpay-backed venture capital fund investing in tech companies at scale-up stage – was forced to adopt a more strategic approach to investing throughout the year.
“We saw some very bullish conditions in the market late last year, with low interest rates and a significant amount of capital trying to find good opportunities; we saw some very highly priced deals,” he said.
“We tried to be very selective with our investment choices over the period, choosing to pass on opportunities where we did not believe we could generate a strong return on capital.”
Mr Vogel’s comments come after a tumultuous start to the year, which saw global markets hit correction territory in January as the Omicron variant began to take hold globally and inflation hit record highs.
*ASX 200 data sourced from Investing.com
Central bank conversations turned to tightening monetary policy, and global shares suffered their worst monthly fall since March 2020 and worst January performance since the GFC struck in 2008.
These losses generally continued through February as the situation in Ukraine deteriorated and the prospect of an energy crisis in Europe pushed oil above US$100 per barrel, further fuelling inflation fears.
The ASX 200, however, managed to eke out a gain through the month, with all sectors excluding information technology rising after Reserve Bank governor Philip Lowe conceded interest rates may rise sooner than expected.