International stock markets are currently trading at excessive valuations and are likely to experience a correction, a senior official at the Bank of England has warned.
Sarah Breeden, the Bank’s deputy governor for financial stability, told the BBC in an interview published on Friday that financial markets are not fully reflecting existing macroeconomic risks.
She noted that while uncertainty is elevated, asset prices remain at record levels, adding that “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.”
Such direct commentary from senior central bank figures on market valuations is relatively uncommon.
During the interview, Breeden also highlighted concerns about multiple risks converging simultaneously, including a potential major economic shock, a loss of confidence in private credit markets, and sharp revaluations in artificial intelligence and other high-risk assets.
She questioned how the financial system would cope if several of these vulnerabilities materialised at once, and whether regulators and markets are adequately prepared.
Global equity markets have experienced fluctuations since joint military strikes by the United States and Israel on Iran in late February, although many developed markets continue to trade near record highs.
On Wednesday, both the S&P 500 and Nasdaq Composite reached new all-time highs, with global equities recovering from earlier losses linked to the conflict.
The MSCI World ex-U.S. index, which tracks large and mid-cap equities across more than 20 developed markets, has also gained since the start of the conflict and is up over 5% so far this year.
Concerns over private credit risks
Breeden also raised concerns about vulnerabilities in the private credit sector during the interview, pointing to rising defaults and growing scrutiny from market analysts.
She explained that private credit has expanded rapidly from almost nothing to around $2.5 trillion over the past 15–20 years, but has not yet been tested under severe systemic stress at its current scale and complexity.
According to her, the main concern is not a traditional banking crisis but a potential “private credit crunch” that could spread through interconnected parts of the financial system.
Although geopolitical uncertainty from the Iran conflict has weighed on sentiment over the past two months, investor confidence in equities remains broadly intact despite elevated valuations.
In a recent client note, Mark Haefele, chief investment officer at UBS Global Wealth Management, said rising energy costs remain a risk factor but maintained an overall positive outlook for equities.
He argued that, unless there is a prolonged disruption, economic conditions and corporate earnings should remain supportive of stock market performance.
Iain Barnes, chief investment officer at Netwealth, told CNBC that Breeden’s remarks reflect a wide spectrum of known market risks.
He observed that investors are aware of potential instability but are currently prioritising strong earnings growth and profit margins over geopolitical uncertainty.
Barnes also noted that central banks must carefully assess how market corrections could influence inflation and economic growth.
However, he cautioned that timing market downturns is notoriously difficult, referencing past warnings by former Federal Reserve chair Alan Greenspan about “irrational exuberance” years before the dot-com crash.
Nigel Green, chief executive of deVere Group, agreed that valuations are elevated but argued that expecting a broad market collapse overlooks the structural impact of artificial intelligence.
He stated that AI is transforming valuation models in real time, with no historical precedent for the current scale of technological disruption and productivity gains.
Some market leaders, including Goldman Sachs chief executive David Solomon, as well as former U.S. President Donald Trump, have also expressed surprise at the resilience of equities despite ongoing geopolitical tensions.
Paul Surguy of Kingswood Group said markets are likely to remain volatile in the coming months, with movements driven largely by developments in the Middle East.
He added that concerns around private credit and stretched valuations in AI-related stocks persist, though many leading technology companies continue to generate strong cash flow and profits.
Surguy further noted that while comparisons are being drawn with the late-1990s tech bubble, today’s major technology firms remain fundamentally stronger, and overall earnings trends continue to provide support for equity markets.