Bank of England (BoE) Deputy Governor Warns: "Global Stock Markets Severely Overvalued... Decline Inevitable"

Sarah Breeden, Deputy Governor for Financial Stability at the Bank of England (the UK's central bank), warned that she expects a decline in global stock markets, stating that the various risk factors facing the global economy are not reflected in current share prices. It is unusual for a high-ranking central bank official to speak so bluntly about market movements.

In an interview with the BBC on the 23rd, Deputy Governor Breeden expressed concern over the current situation where asset prices are hitting all-time highs, forecasting that "there will be a correction in the market at some point." While she did not predict the specific timing or extent of the decline, she pointed out that the market is showing an overly complacent attitude toward serious risk factors. In particular, she cited the possibility of several crises occurring simultaneously—such as macroeconomic shocks, a loss of confidence in the private credit market, and a repricing of high-risk assets like artificial intelligence (AI)—as the most concerning point.

The AI industry is at the center of the recent stock market overheating. Despite warnings from the International Energy Agency (IEA) that the global economy is facing the biggest energy shock in history, the US stock market, home to the world's largest companies, is breaking all-time highs day after day. Some experts, including Microsoft founder Bill Gates, have expressed concern over the hundreds of billions of dollars pouring into AI infrastructure, comparing it to the 'dot-com bubble' of the late 1990s when numerous startups went bankrupt. On the other hand, figures like Jensen Huang, CEO of Nvidia, the largest supplier of chips to AI companies, dismiss these concerns. The UK's FTSE 100 index has also approached within 5% of its all-time high, despite lacking the large-scale AI companies that have driven the rise of the US market.

In addition, Deputy Governor Breeden warned about the rapid growth of the private credit market, so-called 'shadow banking.' These funds, which play a role similar to banks by providing private loans to companies, have recently suffered losses and restricted investor withdrawals, raising concerns about weaknesses in the financial system. She noted, "Private credit has grown from zero to $2.5 trillion over the last 15 to 20 years, but it has not yet been properly tested at its current scale and in its complex interconnectedness with the rest of the financial system," expressing concerns about a credit crunch originating from private credit rather than being bank-led.

Finally, Deputy Governor Breeden emphasized that her job is not to time market declines, but rather to monitor the impact a sharp downward correction would have on the economy when it occurs, and to ensure that the financial system has the resilience to withstand it.