UBS On-Air: Market Moves Across the Pond: Bubble fears meet FOMO
Nov 7, 2025
Kiran Ganesh, Global Head of Investment Communications at UBS Chief Investment Office, shares expert insights on market dynamics. He discusses the tension between FOMO in the AI sector and concerns about an equity bubble, highlighting the highest US valuations since the dotcom boom. Kiran suggests considering diversification into countries like China and Japan, and warns against heavy cash holdings. He advocates for strategic allocation, emphasizing the importance of quality bonds and gold, while offering practical portfolio strategies for uncertain markets.
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Valuations Are Imperfect Predictors
- Valuation metrics vary and none are perfect, from P/E to cyclically adjusted measures.
- One-year P/Es poorly predict short-term returns while smoothed measures correlate somewhat with long-term returns.
Why Bubble Fears Have Grown
- US valuations are high: S&P 500 trades ~23x expected earnings, ~99th percentile historically.
- Elevated valuations plus AI-related vendor finance and commentary fuel bubble fears.
Context Lowers Bubble Alarm
- Structural index shifts and sector mix justify some higher overall P/E today.
- Top tech firms trade far below 1999 peak P/Es and the macro backdrop differs from past bubbles.