Overvalued assets, trade, Brexit pose risks to markets: ESMA

On the heels of the stock market’s recovery this year, the threat of a significant market correction remains high, European regulators warn.

In its latest risk report, the region’s securities regulator, the European Securities and Markets Authority (ESMA), said the key risk for securities markets is that assets may be substantively overvalued “as the significant market correction that occurred at the end of 2018 has been reversed since the start of 2019.”

As a result, it said market risk remains “very high.”

Additionally, ESMA said that while the threat of the U.K.’s exit from the European Union has receded in the short term, “uncertainty about the terms of the U.K. exit still lingers.”

Looking ahead, the regulator noted that the weak growth prospects for the global economy, global trade tensions and Brexit uncertainty are likely to be the most important risk drivers for the months ahead, along with “the fading expectations of monetary policy normalization.”

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