What is Valuation Bubble?

What is Valuation Bubble?

Recently the News headlines are filled with the news like,

“Many market observers are convinced that the ongoing surge in risk assets and risk appetite will ultimately end in a huge bubble in the emerging market asset class broadly, and the BRIC economies in particular. I also happen to subscribe to this view, and believe that India will see significant inflows into equity markets as the momentum builds. Drilling down further, as equity investor, one needs…….”

The Experts believe that, sooner or later the emerging markets (India & China) will experience the Valuation Bubbles. So What is Valuation Bubbles and How they Work?

Well, see. The Valuation Bubble means hyper inflated prices of the various Asset markets such as Gold, Stocks, Bonds, Real Estate & Commodities.

The Valuation Bubble will form because of the liberal monetary policies of the US Federal Government. In the year 2008-09, the US Government has printed literally $ 1.2 Trillion out of thin air and pushed into the economy. US has not printed this much amount of money in the past century. Today the US Dollar is the terribly flowing currency and the newly printed dollars are diluting the purchasing power of the existing dollars in the economy.

And the danger is that, if this newly printed dollar will flow towards the emerging markets like India and China than it will create valuation bubbles. Valuation Bubbles means the valuations of stocks or any other asset goes sky high without increasing any significant intrinsic value of that asset class.

Say for Example, the Stocks may start trading 100 times it’s PE in the future but this much of valuation is not supported by any strong Revenue Growth of the Company and so on. Valuation Bubbles are harmful to any economy. And we should prevent this newly printed money around the world entering into our economy…!!!!