High corporate valuations could pose a significant risk to financial stability as market optimism becomes untethered from fundamentals, the IMF’s director of the Monetary and Capital Markets Department said Tuesday.
Financial markets have been on a tear for much of this year, buoyed by falling inflation and hopes of forthcoming interest rate cuts. But that “optimism” has stretched company valuations to a point where that could become vulnerable to an economic shock, Tobias Adrian said.
“We do worry in some segments where valuations have become quite stretched,” Adrian told CNBC’s Karen Tso Tuesday.
“It was led by tech last year, but at this point, it’s really across the board that we have seen a run up in valuations. There’s always this question, if a negative shock were to hit to what extent do we see a readjustment of pricing,” he said.
Adrian, who was speaking on the side lines of the IMF’s Spring Meeting in Washington, said that credit markets were a particular area of concern.
