Some experts are warning that ASX shares have rallied beyond logic and that returns in 2022 will be relatively dismal.
Cheap money from loose monetary policy and quantitative easing (QE) have pushed global asset prices to irrational levels.
That's the view of global fund manager Schroders, according to the Australian Financial Review.
ASX shares gone wild
"All of this liquidity is starting to drive up prices, housing markets have boomed everywhere, and stockmarkets have gone crazy," the AFR quoted Martin Conlon, head of Australian equities for Schroders.
"[This is] not exactly what you think would happen when we have just come out of a pandemic with decimated economies."
"A lot of areas of the stockmarket have degenerated into gambling now…. There are plenty of danger signs that would suggest that we are absolutely in a bubble market now."
Poor returns in 2022 for ASX shares?
The concern about the overvaluation of ASX shares and the waning monetary tailwinds have prompted JPMorgan to warn investors to expect paltry returns in the new year.
The broker is forecasting returns of just 4% in 2022 for a typical portfolio that consists of 60% ASX shares and 40% bonds, reported the AFR.
It's shares that will be doing the heavy lifting as JPMorgan is expecting this asset class to deliver 5% returns. This is significantly below the 8% average return on the S&P/ASX 200 Index (Index:^AXJO) over the last 10 years.
Tailwinds turning into headwinds
Central banks around the world, including ours, have pared their QE programs. This is where central banks purchase select assets, like government bonds, from the secondary market.
The purchases keep bond yields (and borrowing costs) down and pump trillions of dollars through the global financial system.
Record low interest rates added fuel to the fire. You only need to look at record breaking surge in Australian residential prices to see the effects of low rates and QE.
But interest rates are moving higher and this tailwind will soon turn into a headwind for ASX shares.
Where to get better returns
JPMorgan believes investors will have to look outside of traditional asset classes to get better returns.
These include investing in real assets, such as infrastructure and transport. This means instead of buying ASX shares like Qube Holdings Ltd (QUB) or Transurban Group (ASX: TCL), they should invest directly in a port or a toll road.
Of course, most retail investors won't be able to do this directly themselves. They will need to invest via a fund – not that I am accusing JPMorgan of talking up their own book.
