Investors are becoming \u201ccomplacent\u201d about the risks of a financial crisis arising from ballooning government debt and asset price bubbles in the stock market, the International Monetary Fund has warned. <\/p>\n
In its biannual assessment of financial stability risks, the IMF warned of \u201cincreasing vulnerabilities\u201d across the financial system this year. It said traders were at risk of ignoring the threats from stretched government balance sheets and the fiscal and inflationary impact of tariffs, as well as risks associated with the so-called shadow banking sector. <\/p>\n
\u201cMarkets appear complacent as the ground shifts,\u201d the IMF said. \u201cDespite trade tensions, geopolitical uncertainties and rising concerns about sovereign indebtedness, asset prices have returned to stretched valuations and financial conditions have broadly eased. These vulnerabilities reinforce each other, keeping global financial stability<\/a> risks elevated.\u201d<\/p>\n Measures of market volatility and financial conditions fell to yearly lows in September as US stock markets hit record highs on the back of optimism about mammoth AI-driven investments among \u201chyperscaler\u201d tech firms. But there have been signs of fragility, as US stocks suffered their worst trading day since April last Friday after Donald Trump threatened to hit China<\/a> with a blanket 100 per cent tariff. <\/p>\n The bankruptcy last month of First Brands, a US midwestern auto parts supplier, has also raised alarm about the private credit market<\/a>, with the company\u2019s lenders scrambling to find $2 billion of funds they claim have been lost. <\/p>\n According to the IMF\u2019s modelling, the valuations on risky assets like equities have \u201cbecome stretched\u201d in recent months. It said: \u201cAn abrupt correction of asset prices could be exacerbated by these unusual asset correlations and lead to an unwinding of leverage and straining financial markets.\u201d <\/p>\n The Washington-based fund\u2019s global financial stability report stated: \u201cThe apparent calm masks a degree of complacency. Markets seem to have downplayed the potential effects of tariffs on growth and inflation.\u201d <\/p>\n \u2022 AI bubble risks global market sell-off, Bank of England warns<\/a><\/p>\n