IMF warns: High corporate valuations pose a risk to financial stability

The Director of the Monetary and Capital Markets Department at the International Monetary Fund said that high corporate valuations could pose a major risk to financial stability around the world, as market optimism has become unrelated to fundamentals.

Financial markets have been in a state of instability during the recent period, supported by uncertainty about inflation and interest rate cuts.

Tobias Adrian, Director of the Monetary and Capital Markets Department at the International Monetary Fund, said that this “optimism” has led to companies’ valuations rising to the point where they could become vulnerable to an economic shock.

The International Monetary Fund official expressed concern about some sectors and the rise in valuations in them, including technology companies, but he said that all sectors had recently witnessed a rise in valuations. He said that the question that always arises is, “If a negative shock occurs, to what extent will we see a readjustment in prices?” Adrian, speaking on the sidelines of the International Monetary Fund’s spring meeting in Washington, said credit markets were a particular area of concern.