BoE deputy governor warns of potential stock market downturn

(Sharecast News) - The deputy governor of the Bank of England has said that equity market valuations are too high given the macroeconomic risks facing the global economy. In an interview with the BBC on Friday, Sarah Breeden warned of a potential stock market downturn with key equity benchmarks already trading at or close to record highs despite the current heightened economic and geopolitical uncertainty.

"There's a lot of risk out there and yet asset prices are at all-time highs. We expect there will be an adjustment at some point," Breeden said.

"The thing that really keeps me awake at night is the likelihood of a number of risks crystallising at the same time - a major macroeconomic shock, confidence in private credit goes, AI and other risky valuations readjust. What happens in that environment and are we prepared for it?" she said.

In particular, she warned about a potential private credit crunch, with the shadow banking system yet to experience a true market sell-off.

She said that private credit has soared "from nothing to two-and-a-half trillion dollars in the last 15 to 20 years".

"It hasn't been tested at this scale with the degree of complexity and interconnections it has with the rest of the financial system so far [...] It's a private credit crunch, rather than a banking-driven credit crunch, that we're worried about," she said.