The good news on vaccines tends to overshadow an uncertain economic outlook, according to the Bank of International Settlements.
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The Bank for International Settlements (BIS) on Monday pinned “excessive valuations” in financial markets after the sharp rebound in major stock indexes, noting that good news on vaccines tends to overshadow uncertain economic prospects.
Advances on COVID-19 vaccines and the US elections have given a boost to risky assets that have “familiarized” with, or even “exceeded”, their pre-pandemic levels, traced this institution considered the central bank central banks in its quarterly report.
“While markets have responded well to vaccine news, they are approaching or exceeding pre-pandemic levels, when questions were already raised about excessive valuations,” said Claudio Borio, head of the Monetary and Economic Department of the United Kingdom. BRI, cited in a press release.
But “a certain degree of gap between the valuations of risky assets and the economic outlook seems to persist,” he warned.
The renewed optimism about the business climate but also the assurance of central bank support to mitigate the repercussions of the second wave also helped to pull the markets up.
With low yields on government bonds still unusually low, the search for yield resumed, prompting new investors to place their money in the stock markets.
In its quarterly report, the BIS, however, highlighted anomalies in the assessment of the weaknesses of companies.
While, on the one hand, the risk premiums on the bond markets have continued to decline to approach their pre-pandemic low points, the banks have, on the contrary, tightened their criteria for granting loans. in recent months, noted the BIS.
In the future, we can expect more bankruptcies and banks are already starting to be more cautious in their risk assessment. On the other hand, on the bond markets, the yield spreads remain “rather weak” historically, underlined Mr. Borio, during a conference presenting the conclusions of the quarterly report.
On the sidelines of this report, which reviews market and economic developments every quarter from the perspective of central banks, the BIS has published an analysis on how the financial weaknesses of companies can affect their survival and lead them. to bankruptcy.
It highlights that a high short-term debt and a low profitability compared to the interest charges constitute the two most important financial indicators of the risk of disappearance of a company.
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