WATCH: Bonds, budgets and bubbles

Are we in a stock market bubble? And if we are, what should investors do about it? Historically, it’s always been hard to know how far a bull market can go. And value has proven to be a very weak read on which to lean, because value can go up and up.

The nightmare for any value manager is Japan in 1989, when the price-earnings ratio went to 65 times. It had never previously been over 25 until that cycle. But bond market moves this week have made investors nervous that the frothy parts of the market could be the first to go in panicked selloff.

The scale of the selloff prompted Australia’s central bank to launch a surprise bond-buying operation to try to staunch the bleeding, helping yields there come off early peaks. If rates rise sooner than expected Tito’s budget forecasts might have be tossed out the window.

Michael Avery talks to Warwick Lucas, chief investment officer at Galileo Asset Managers; and Raymond Parsons, professor in the School of Business and Governance at North West University, about the week’s market activity and the budget.