Stock markets will fall, Bank of England deputy governor says | Stock markets
Record global stock markets do not reflect risks to the global economy and will fall back, the Bank of England deputy governor has said.
Sarah Breeden, the bank’s vice president for financial stability, fears macroeconomic risks are not fully priced into equity markets. He cited concerns about private credit markets, highly valued AI stocks and other “risky valuations.”
Breeden told the BBC: “There’s a lot of risk there but asset prices are still at all-time highs. We think there will be an adjustment at some point.”
The US stock market hit a record high earlier this week as investors shrugged off fears that the energy shock caused by the Iran war would hurt the global economy and increase inflation.
Japan’s Nikkei 225 index closed the day with a record close, driven by the rise in technology stocks after chipmaker Intel exceeded forecasts with its latest results on Thursday night.
Britain’s FTSE 100 share index is around 5% below the record high it reached at the end of February, just before the start of the Iran war.
Concerns about private loans, which involve risky loans financed using investors’ money, have been growing in recent months.
Bank Warned at the end of March He said valuations were particularly stretched for U.S. tech companies focused on artificial intelligence, and investor sentiment on risky credit markets had worsened even before the conflict in the Middle East began.
Breeden told the BBC that the Bank was worried about “a private credit crunch rather than a banking-led credit crunch”.
“What really keeps me awake at night is the possibility of a number of risks crystallizing simultaneously – a major macroeconomic shock, the loss of confidence in private credit, AI and other risky valuations recalibrating – what happens in this environment and are we prepared for it?” he said.
“What we’re watching is: How might these prices fall? Will there be a sharp adjustment downwards? And if there is such an adjustment, how will that impact the economy? I’m not saying it’s going to happen today, tomorrow or 12 months from now. That makes the system resilient if it does happen,” Breeden added.
The FTSE 100 fell around 0.5% on Friday after Breeden’s interview was broadcast, amid a broader market decline as traders worried there was no sign of an improvement in the Iran war.
Simon French, chief economist at investment bank Panmure Liberum, said Breeden’s warning that the UK government was launching an initiative to encourage British savers to invest in financial markets coming within a week “might be seen as insufficient”.
Russ Mould, investment director at AJ Bell, suggested his suggestion of a potential global stock market correction could weigh on the City.
“It is unusual for a Bank of England official to publicly warn of a possible stock market pullback, and the comment may have contributed to some of the FTSE 100’s decline on Friday.
“Breeden wasn’t just talking about Middle East events; he was also touching on the private credit crisis, high equity valuations and concerns about artificial intelligence,” Mold added.
