Global stock markets are overvalued and likely to decline, according to a top official at the Bank of England. Sarah Breeden, the bank's deputy governor for financial stability, said in an interview with the BBC that asset prices have reached all-time highs despite significant risks looming over the global economy.
"There's a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point," Breeden stated. Her frank assessment is unusual for a senior central banker, who typically avoid commenting directly on market valuations.
While declining to specify a timeline or magnitude for the anticipated fall, Breeden highlighted several factors that markets appear to be underestimating. She expressed particular concern about the potential for multiple risks to materialize simultaneously, including a major macroeconomic shock, a crisis in private credit, and a correction in overvalued AI and tech stocks.
The warning comes as US stocks continue to set records, driven by a handful of tech giants investing heavily in artificial intelligence. Some, like Microsoft co-founder Bill Gates, have compared the current AI boom to the dotcom bubble of the late 1990s, calling it "a frenzy." Nvidia CEO Jensen Huang, whose company supplies chips for AI, has dismissed such concerns.
Breeden also pointed to the rapid growth of "shadow banking" — private credit funds that lend to businesses outside the traditional banking system. This sector has ballooned from nothing to $2.5 trillion over the past two decades, she noted, and has not been tested under stress. "It's a private credit crunch, rather than a banking-driven credit crunch, that we're worried about," she said.
The UK's FTSE 100 index, while less exposed to AI hype, is also within 5% of its record high. Breeden emphasized that her role is not to predict market moves but to ensure the financial system is resilient to any sharp downturn.
"What we are watching for: is how might those prices fall? Will there be a sharp adjustment downwards? And if there is such an adjustment, how will that affect the economy?" she said. "I'm not saying it will happen today, tomorrow, in 12 months' time. It's ensuring that if it happens the system is resilient."