2021-08-30-牛津经济研究院-Global_Financial_market_risks_–_real,_but_maybe_overstated_4页_279kb

Research Briefing Summary | Global Financial Market Risks – Real, but Maybe Overstated

Core Content

This briefing discusses the current state of global financial markets, focusing on concerns about elevated asset valuations and rising corporate debt. While these factors have raised alarms, the analysis suggests that while risks exist, they may be overstated due to the context of low interest rates and continued economic growth.

Main Points

1. Asset Valuations and Corporate Debt

• Equity valuations are currently in the top 1% seen in the last 150 years, based on the cyclically adjusted price-earnings (CAPE) ratio, with only the 'dotcom' boom surpassing them.
• Real stock prices have increased by 30% since pre-pandemic levels, while real house prices have risen by 9%.
• Corporate debt in advanced economies has surged from ~90% of GDP in early 2020 to ~105% of GDP by year-end 2020, with US high yield debt issuance reaching record levels in 2021.
• M&A activity has increased significantly, with global deal values exceeding US$1 trillion in each of the past three quarters. However, this is not unprecedented when compared to previous cyclical peaks.

2. Corporate Distress and Financial Stability

• Corporate default rates are currently low, with the global speculative grade corporate bond default rate at 3.3% as of 2021, below the long-term average.
• Lender forbearance may be masking some financial issues, but the share of loans in forbearance is still relatively low (2% in recent quarters), suggesting no immediate crisis.
• Commercial real estate (CRE) has seen a strong rebound in prices, but delinquencies in commercial mortgage-backed securities (CMBS) have risen, indicating potential future defaults, particularly in sectors like retail and hotels.

3. Impact of Low Interest Rates

• Low interest rates have contributed to higher asset valuations, especially for equities, commercial property, and high yield bonds.
• High yield bond spreads are currently close to their lowest point since the late 1990s, implying thin but positive returns for investors.
• Excess CAPE yield (ECY), an alternative valuation metric, suggests that equities are not as overvalued as they might appear, but are vulnerable to rising bond yields.

4. Potential Risks and Triggers

• A growth scare or a rise in bond yields, possibly due to inflation, could lead to a reassessment of asset valuations.
• A return of real bond yields to levels seen in late 2018 (1–1.5%) could bring the ECY valuation measure for US equities down to 2007 levels.
• Inflation risks are significant, though the probability of a shift to a higher inflation regime is estimated at 10–15%.

Key Information

• Asset prices have risen sharply since Q2 2020, with many reaching or exceeding pre-pandemic levels.
• Corporate debt levels are high, but not yet causing widespread financial distress.
• M&A activity is robust, but not at the same level as previous peaks in terms of GDP share.
• Low interest rates have played a crucial role in supporting asset valuations.
• Financial stability is not at immediate risk, but there are potential risks of reversal if economic growth weakens or interest rates rise.

Conclusion

While current asset valuations and corporate debt levels are high, the analysis indicates that these are not necessarily indicative of an imminent financial crisis. The low interest rate environment has supported these valuations, and the absence of widespread corporate distress suggests that the risks, although real, may be overstated. However, the potential for a growth scare or a rise in bond yields remains a key concern that could challenge the current market conditions.