Are Financial Markets Overheating?

The Bank for International Settlements (BIS) has warned that the current situation in financial markets bears a resemblance to the pre-2008 financial meltdown period, with investors borrowing heavily to invest in risky assets.  

According to the BIS, the recent moves of central banks to raise rates to discourage risk taking has not tempered the appetite for speculative investments, and bubbles have continued to grow.

High profile fund Manager Neil Woodford has also warned that interest rates, that have been artificially held down in order to prop up the post 2008 economic recovery are now pushing the prices of assets to levels that are no longer tenable (James Connington, Neil Woodford says markets are in a bubble which will 'inevitably' burst, Telegraph, December 2017).

According to the BIS, the global economy is expected to grow by 3.7% next year, up from 3.6% this year, which is positive on the face of it. However, economists have begun to express concern that high-risk investments such as European junk bonds are yielding similar returns to US government bonds (Phillip Inman, Guardian, November 2017).  

Closer to home, the BIS has ranked the UK amongst the countries most exposed to interest rate changes due to the level of consumer debt. The Bank of England reported that consumer debt in the month of October had grown by 9.6%, vastly outstripping the increase in wages for the same month which stood at only 2.2% (Bank of England, November 2017).  

Reducing your personal debt is essential for your financial health and is one of the first steps you should take in order to improve your personal finances.  

Having taken the factors both international and local in to account, it’s important to remember that only by taking a long-term view, will investors potentially reap the benefits of investing in the market.  Westminster Wealth Management can assist in helping you to navigate your financial future, and expert advice is valuable in complicated times just as much as in simple ones. Contact us today.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.