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High market valuations face potential big correction, says EU markets watchdog

High market valuations face potential big correction, says EU markets watchdog

reuters.com · 09/01/2021 05:00
High market valuations face potential big correction, says EU markets watchdog

- With valuations in European Union financial markets now at and even ahead of pre-pandemic levels, markets face possibly significant corrections, the bloc's securities watchdog said on Wednesday.

Helped by vaccine roll-outs and sustained public support for the economy, corporate bonds are far above their pre-COVID 19 levels, with increased risk taking also evident in stocks and crypto assets, the European Securities and Markets Authority (ESMA) said in its latest report on trends, risks and vulnerabilities in markets.

"Going forward, we expect to continue to see a prolonged period of risk to institutional and retail investors of further – possibly significant – market corrections," ESMA said.

"Current market trends will need to show their resilience over an extended period of time for a more positive risk assessment to be made."

Investor confidence has increased, linked to rising asset prices and strong performance of retail investor instruments.

A surge in retail trading since the onset of the COVID-19 pandemic has been driven by innovation, and new online and mobile trading platforms that offer zero-commission business models and "gamified" features may further attract consumers.

"These features can prompt investor protection concerns, as does the rise of trading encouraged by social media and online message boards," ESMA said.


(Reporting by Huw Jones; Editing by Toby Chopra)

((huw.jones@thomsonreuters.com; +44 207 542 3326; Reuters Messaging: huw.jones.thomsonreuters.com@reuters.net))