Macroscope | Investors’ blindness to risk has pushed the asset-price bubble to alarming levels
While the rally is likely to persist for some time yet, investors have been warned – and by members of the Davos elite no less
As the world’s political, corporate and financial elite descended on the Swiss ski resort of Davos on Tuesday for the opening of the annual meeting of the World Economic Forum, the mood was unmistakably bullish.
The International Monetary Fund had set the tone a day earlier when it issued a new set of forecasts showing that the global economy is enjoying the “broadest synchronised growth upsurge since 2010”.
Yet it did not take long for the sceptics to voice their concerns.
A major theme at this year’s Davos is complacency in financial markets. The extremely benign global economic backdrop, coupled with the persistence of ultra-low bond yields despite the beginning of the withdrawal of monetary stimulus, have driven valuations in debt and equity markets to record highs. This has desensitised international investors to a plethora of financial and geopolitical risks.
Michael Corbat, the head of Citigroup, put it succinctly when he said on a panel at Davos that “there is a numbness out there that’s concerning. When the next [major sell-off] comes – and it will come – it’s likely to be more violent than it would otherwise be if we let some pressure off along the way.”
Make no mistake, the Davos elite see the writing on the wall.