:quality(80)/cdn-kiosk-api.telegraaf.nl/48d5b338-0b43-11ec-aa0b-0255c322e81b.jpg?fit=%2C&ssl=1 "EU watchdog ESMA warns of ‘great risk’ market crash | Financial")
In recent years, very high corporate and government debt, overvalued investments including equities and a growing flight to risky investments such as in the highly volatile cryptocurrencies can lead to a sharp decline in the financial markets, according to the European Securities and Markets Authority (ESMA) Wednesday after investigation.
The ten-year-old body in Paris has been concerned about the financial markets for some time, but is now exacerbating those concerns. It investigated a series of vulnerabilities. One reason for the latest alarm is, for example, the enormous price movement in the GameStop share. The share price of the company in which many private individuals invested went up and down in a short time by many tens of percentages.
In addition, the market reaction to the loss of billions in investments at US hedge fund Archegos and British financial services provider Greensill shows clear signs of growing uncertainty, according to ESMA.
More risks
Also, taking much more risk by private investors with, for example, mobile investment apps such as Robinhood, which allow people to put their money into financial products at no extra cost while encouraging purchases on social media, fits in with that sentiment of increased risk of a downturn, according to ESMA.
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Dutchman Steven Maijoor, director of watchdog ESMA, warns of the risks of a stock market crash.
Ⓒ ANP/HH
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“We expect a prolonged period of risk for institutional and private investors in the event of further, potentially significant market corrections,” writes ESMA, founded in response to the 2008 credit crisis.
The watchdog Maijoor, active since its creation in 2011, also points to the damaging consequences of continuing massive government and monetary support. Because central banks remain so emphatic and large in the market with the purchase of hundreds of billions in bonds, the chance of profit for banks and insurers is limited.
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