A correction at the Wall Street may lead to a global crisis worse than the dot-com crash, considering the high global exposure to US equities, warned Gita Gopinath, the former chief economist at the International Monetary Fund.
“The exposure of the world to US equities is at record levels. A stock market correction would have more severe and global consequences as compared to what followed the dot-com crash,” Gopinath said, in an article she penned for The Economist on Wednesday.
The Harvard University professor argued that both the American and international investors have become “dangerously dependent” on the US equities, particularly in the technology sector, leaving the global economy vulnerable to sharp decline in the stock prices.
Gopinath has connected the high rise in markets today to the exuberance before the dot-com bubble. She noted that the markets could be setting up a stage for a painful correction.
“The scale of exposure today is far larger and more interconnected than in 2000,” she wrote. “A correction in American markets would reverberate worldwide.”