Global markets are getting too comfortable with risks like trade wars, geopolitical tensions and yawning government deficits, which, combined with already overpriced assets, increase the chance of a "disorderly" market correction, the
Global markets are getting too comfortable with risks like trade wars, geopolitical tensions and yawning government deficits, which, combined with already overpriced assets, increase the chance of a "disorderly" market correction, the International Monetary Fund said on Tuesday.
Underscoring the IMF's warning, President Donald Trump's revived threats on Friday to hike tariffs on China stoked investor fears of a major asset price correction. The comments sparked a sell-off in U.S. stocks and sent bitcoin tumbling.
Despite this recent volatility, markets have mostly been resilient since April, when Trump unleashed his trade war, underpinned by expectations of monetary easing in most major advanced economies. However, this market optimism masks the potential damage from tariffs and high government debt. The IMF warned that the close ties between banks and less-regulated financial firms could amplify these risks.
"Beneath the calm surface, the ground is shifting in several parts of the financial system, giving rise to vulnerabilities," the body wrote in its semiannual Global Financial Stability Report.
"Valuation models indicate that risk asset prices are well above fundamentals, increasing the probability of disorderly corrections when adverse shocks occur," it wrote.
Despite some negative economic data, equity and corporate credit valuations are "fairly stretched" as
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