I’ve no doubt we are in an asset bubble – but how long will it last?

Until it ends, all investors can do is to be alert, cautious, and wise, writes Hamish McRae

Market traders have seen plenty of volatility in a number of stocks recently (Getty Images)

So how will the asset price bubble end? There is a short answer: badly. But that is a profoundly unhelpful one. We know all such bubbles eventually pop. What matters is how, why and when? And there the response is really very difficult to frame.

But first, let’s accept that there is indeed a bubble – that some asset prices have been buoyed up by speculation and are at unsustainable levels. It is not a universal bubble in the sense that not all of the things that people put money into are overpriced. UK shares remain, on most valuations, around their long-term averages.

The FTSE 100 index has a dividend yield of more than 3 per cent, and that has been artificially depressed by the ban on bank dividends. UK homes are at record levels but there is solid demand for larger homes. Prices may be historically high in relation to people’s incomes, but history has also taught us that while prices may fall for a few years they will eventually recover.