CMVM president warns of stock market bubble

The European stocks and share markets which are being indirectly boosted by the EU’s central bank monetary policies such as quantitative easing and bond purchasing, is fuelling a “rally” in stock markets which is distorting confidence away from economic reality.

The warning that there is a disconnect between economic activity and the performance of stock markets was given by the new president of the Portuguese stock market regulator Gabriel Bernardino who officially started work today (Monday) when he recently addressed Portuguese MPs in parliament.
Although the speculative disconnect between Wall Street and ‘Real Street’ has been wide since the 1980s, in recent months that gulf has got worse with historic highs on world stock exchanges coinciding with historically high unemployment rates and a recession without precedent in the world economy as a result of the Covid-19 pandemic.
“We have at the moment a high valuation of assets, particularly shares which seem to reveal a disconnect with the real economy, raising doubts about the (market’s) sustainability”.
On 2 November Wall Street closed its session with historic records and investors applauding strong quarterly results posted by various companies.
S&P’s 500 market capitalisation recently was 177% of US GDP. By way of comparison, during the 2000 dot.com bubble, the S&P 500s market capitalisation peaked at 121% of nominal gross domestic product.
The current level is also double the average reading of the past tree decades and triple the valuation where the S&P 500 bottomed during the 2008-2009 financial crisis.
According to Morgan Stanley the US and EU’s current easy monetary policy and the spike in inflation has left investors with negative real interest rates, with central bank policies divorced from market fundamentals, fuelling speculative asset bubbles.