- ORIGINAL NEWS
High company valuations a ‘worry,’ IMF’s capital markets chief says
- SUMMARY
High corporate valuations, a result of exuberant market optimism, have raised concerns about financial stability, warns the International Monetary Fund (IMF).
As valuations exceed fundamental indicators, an economic shock could trigger a significant price readjustment.
The IMF’s Director of Monetary and Capital Markets, Tobias Adrian, highlights credit markets as a particular area of concern.
Despite weakening borrower fundamentals, credit spreads remain narrow, allowing even riskier borrowers to secure debt at favorable rates.
Adrian also expresses worries about the property market, especially commercial real estate, which has witnessed a worrying expansion.
Adrian notes the vulnerability of medium and small-sized lenders to commercial real estate shocks.
These lenders have significant exposure to the sector, which faces pressures from remote work and online shopping.
Combined with their fragile funding base, this exposure could rekindle instability.
The IMF’s concerns coincide with an upgraded global growth forecast but acknowledgment of lingering downside risks, including inflation persistence and uncertainty around interest rates.
Adrian emphasizes that inflation remains above target, and interest rate risk remains a key factor under consideration.
The IMF cautions that surprises could lead to further adjustments, while balancing both upside and downside risks in different countries.
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“High corporate valuations could pose a significant risk to financial stability, the IMF’s director of monetary and capital markets said Tuesday.”
“Market “optimism” has stretched company valuations to a point where that could become vulnerable to an economic shock, Tobias Adrian told CNBC.”