American banker Charles Dallara thinks the global levitating trick of increasing financial market asset values has almost run out of magic.
Since the start of 2013 the average consensus growth rate forecast for 2014 has been marked down globally from 3.2% to 2.4%. At the same time the MSCI global index of equities has risen 30%.
Dallar, a former managing director of the Institute of International Finance and now with the Partners group, says those numbers are real levitation.
Asset values are high off the ground without any apparent support in terms of realistic valuations.
“I think we are approaching a time, and I’m not sure when it will be, when the world is going to look quite different because you are no longer going to see the Federal Reserve able to forever levitate financial assets in divergence from fundamentals,” he says.
He told the annual AVCAL (Australian Private Equity and Venture Capital Association) conference in Melbourne there will be challenges for all when interest rates start rising again.
“This makes our job in venture capital and private equity a little bit more challenging,” he says. “It should also make it more rewarding because this is when performance really matters.”