The International Monetary Fund (IMF) recently warned that the threats to global financial systems are rising and that high valuation in many markets are reminiscent of past times before economic crises. These comments were reported by Andrew Mayeda in a recent Bloomberg article.
According to the Bloomberg article, the IMF said “Financial risks have increased somewhat over the last six months.” They suggest that “Financial vulnerabilities” have built up over many years of very low interest rates. Rising rates could dampen growth prospects globally going forward and increase volatility in the markets.
They also indicated that prices are “Frothy” in a variety of sectors. This is especially true for U.S. markets they say. It’s not just in stocks; they indicate that corporate bond valuations are also too high, with “Signs of overheating in demand for leveraged loans from firms with low credit ratings.”
Sharp Correction Coming?
Could these risks conspire to produce a global correction? If one occurs will it be severe or prolonged? The IMF’s concerns come out ahead of the Spring, 2018 meeting of the 189 IMF counties in Washington, D.C. Always on the lookout for catalysts that could hinder economic stability, the IMF is worried that the rise of risky cryptocurrencies, trade “jitters” between key nations, and the inevitable rise in interest rates could singly or collectively usher in a global downtrend of some sort.
Of course, no one has a perfectly clear crystal ball, especially regarding financial matters. But, the IMF has been studying global financial systems for years. Savvy market observers do not take their opinions lightly. Born from the ashes of the Great Depression in 1944, the IMF is a global association of countries working to promote global monetary cooperation and secure global financial stability.