Global | Financial market risks – real, but maybe overstated

Financial market risks – real, but maybe overstated

Concerns have risen about financial market risks, centring around elevated asset valuations and high corporate debt. A lack of corporate distress and low interest rates suggest no cause for panic. But a growth scare or a rise in bond yields – perhaps due to higher inflation – could change the picture.

What you will learn:

  • Standard equity valuations are in the top 1% seen in the last 150 years, and there has also been a surge in M&A activity in recent quarters involving highly leveraged deals. Corporate debt in the advanced economies has soared since early 2020, and US high-yield debt issuance is at record levels.
  •  If we take low interest rates into account valuations for equities, commercial property, and high yield bonds – while still mostly rich – look less extreme than they first appear.
  •  M&A flows as a share of world GDP, while high too, are below
    previous cyclical peaks.
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