Another week, another warning that stock markets are looking frothy. In June, the Bank for International Settlements, an organisation of central banks, highlighted the “puzzling disconnect between the markets’ buoyancy and underlying economic developments globally”. Last week, the Institute of International Finance (IIF) did the same. Such warnings have become more frequent in recent months.
The gap between the fundamentals and the performance of equities is worrying. Bank of America Merrill Lynch (BAML) notes that, since March 2009, world stocks have jumped by 190%, but US GDP is up just 18%.
The problem is the inevitable hangover after a credit [...]
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