Markets Ignoring The Math? BoE Official Warns Global Equities May Enter Correction
Global equities may be running ahead of fundamentals, with risks building beneath the surface, according to Sarah Breeden, deputy governor for financial stability at the Bank of England.
Speaking to the BBC in an interview reported by Simon Jack, Breeden cautioned that current market valuations appear disconnected from underlying economic threats, raising the likelihood of a correction.
“There’s a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point,” she said.
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Her warning comes amid a strong global rally. On Wall Street, the S&P 500 and Nasdaq Composite have surged to record levels, gaining nearly 30% and 42% respectively over the past year. In Asia, Japan’s Nikkei 225 has crossed 60,000, while South Korea’s Kospi recently hit an all-time high.
Back home, the BSE Sensex and NSE Nifty 50 have climbed nearly 7% in April alone, tracking the global momentum. The UK’s FTSE 100, too, remains elevated after a strong yearly run.
Breeden flagged the risk of multiple shocks hitting simultaneously, from a macroeconomic downturn to a potential loss of confidence in private credit markets, alongside a reassessment of valuations tied to artificial intelligence.
“The thing that really keeps me awake at night is the likelihood of a number of risks crystallising at the same time… what happens in that environment and are we prepared for it?” she said.
A key concern is the rapid expansion of the shadow banking ecosystem, particularly private credit, which she noted has grown to $2.5 trillion over the past two decades without being stress-tested at this scale.
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Breeden emphasised that regulators are more concerned about a private credit crunch than a traditional banking crisis, adding that the focus remains on ensuring resilience rather than predicting timing.
“What we are watching for: is how might those prices fall? Will there be a sharp adjustment downwards? … It’s ensuring that if it happens the system is resilient,” she said.
The caution also comes amid a surge in AI-linked investments. While Jensen Huang has played down concerns, Bill Gates has described the wave of spending as a “frenzy”, drawing comparisons with the late-1990s dotcom bubble.
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