IMF Warns of Stock Market Surge Not Supported by Real Economy

Warning of Delayed Economic Recovery Amid Stock Market Crash
"Market Value Inflated Beyond Actual Worth"

Georgieva, Managing Director of the International Monetary Fund (IMF)
[Image source=AP Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The International Monetary Fund (IMF) has expressed concerns about the disconnect between the real economy and financial markets. This is a warning about the stock market soaring based on abundant liquidity amid the global economic downturn caused by the novel coronavirus disease (COVID-19).

On the 25th (local time), the IMF stated in its Global Financial Stability Report (GFSR) that the ongoing disconnect between the real economy and financial markets could lead to an adjustment in asset values.

This can be linked to the situation where central banks of various countries, including the United States, lowered interest rates in response to COVID-19, resulting in abundant liquidity flowing into the stock market and major indices rising.

In the case of the United States, although the spread of COVID-19 is surging again and concerns about the timing of economic recovery persist, the New York stock market has shown an upward trend, rising more than 30% from its low point.

The IMF emphasized, "If investors' risk appetite disappears, the disconnect between the real economy and the market could bring another adjustment to the value of risky assets," adding, "This would also pose a risk to economic recovery."

The IMF pointed out that "the difference between market prices and valuations based on fundamentals in most major advanced countries' stock and bond markets is historically high," indicating that market prices are inflated beyond actual value.

The IMF also noted that corporate bond issuance relative to gross domestic product (GDP) is at historically high levels. The IMF expressed concern, stating, "Combined with household debt that has increased in recent years, this could become a vulnerability in financial markets and another shock to the ongoing economic crisis."

The IMF pointed out that some debtors may struggle to manage high debt levels, warning, "Losses arising from bankruptcies could test the resilience of banks in some countries."

Tobias Adrian, Director of the IMF's Monetary and Capital Markets Department, also urged caution in a blog post about the possibility of unintended consequences in capital markets despite abundant liquidity.

This content was produced with the assistance of AI translation services.