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The market faces the risk of a harmful debt bubble, which could spread losses across the financial sector.
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Economist Dambisa Moyo warns against stocks being overvalued due to AI hype.
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Moyo highlights the risk of highly leveraged non-performing assets, similar to the 2008 crisis.
The stock market could be hosting one of the most damaging types of debt bubbles, with the risk of losses spreading across the financial sector, according to a veteran economist and investor.
In a recent opinion piece published in Syndicate ProjectDambisa Moyo, an economist, Goldman Sachs graduate and current director of Versaka Investments, pointed to growing concerns that the stock market is becoming overvalued. Wall Street’s enthusiasm for AI He has made huge gains. Mega Cap Tech Stocks This Yearpushing the three benchmark stock indexes to new record highs.
“The signs of a bubble in financial markets are becoming clear,” Moyo wrote. “Such trends certainly justify concerns about new bubbles in stock markets.”
But what’s more worrying is that the United States could be experiencing one of the most problematic types of bubbles, fueled by heavily borrowed, “non-productive” assets, as Moyo put it. These are more damaging to the economy than productive assets, or assets financed by cash or equity, where losses are more confined to direct investors.
The best example of this type of bubble is mortgage crisisShe added that this happened when the oversupply of housing collided with risky lending practices, causing home prices to fall by about a third.
Most economists don’t see such a scenario happening today, thanks to tighter lending standards in the banking sector. But many companies that appear to be over-borrowed and unproductive appear to be financed in the shadow banking sector, where there is little regulatory oversight of debt-taking, Moyo says.
Financial distress is already growing among some of the most indebted and unprofitable companies. Corporate bankruptcies are now rising at the fastest pace since the pandemicAccording to data from Standard & Poor’s Global, bankruptcy filings rose to 346 in June.
Moyo added that losses incurred by troubled companies also threaten to contaminate other areas of the market.
“While a loss incurred by someone using accumulated savings will have only a limited impact on the wider economy, losses incurred by someone using ‘borrowed’ money, especially with high levels of leverage, can be contagious. A system that lacks visibility into the sources and forms of capital underlying many investments is a risky system. More stringent scrutiny of non-performing assets that rely on leverage is crucial to avoiding a financial crisis.”
Other Wall Street experts expressed concern. Fears on Stores And the installation Big company religionespecially considering how high valuations are in the market. According to one valuation measure, Stocks seem to be the most overvalued. At all, it even exceeded the levels we saw in 1929.
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