The world's financial markets are characterized by a high appetite for risk, which is evident in the fact that many of the world's stock markets are trading at record levels, despite the uncertain environment of war and tariffs.
The situation is quite special now with significant risks for political-economic development, geopolitical tensions, rising government debt and at the same time a valuation on the stock market that is very optimistic, says Thedéen at a press conference.
If we were to have a crash in the stock market, it would become more expensive for companies to borrow, which could have significant effects on the economy, of course, but also on financial stability. The systems are interconnected.
“Gotta be vigilant”
The Riksbank Governor notes that the valuation is largely linked to AI investments and concentrated in a small group of tech companies, those usually referred to as the Magnificent 7, that is, Apple, Nvidia and Tesla, among others.
Thedéen describes the discrepancy between the joy in the financial market and the "significant risks" in the outside world as an obvious contradiction.
And we warn against that. This means that this system is sensitive to disruption. If there is more negative news that affects, for example, corporate profits, it can cause rapid corrections, he says.
There is talk of a possible AI bubble, is that something the Riksbank is considering?
We're just stating that that's what it looks like, that's what's driving the stock market, even driving economic development in the U.S. Just the fact that the valuations are so high, that it's happened so quickly, makes you have to be vigilant.
Fundamentally strong
The Riksbank points out that Swedish banks are fundamentally strong and resilient, even though they are highly dependent on the outside world and therefore vulnerable to global disruptions.
However, if interest rates rise, households with high borrowing rates are at risk, the Riksbank assesses in its report.
The proposal for more generous loan rules in the form of reduced amortization requirements and higher mortgage limits could make households even more sensitive to shocks, notes the Riksbank, which wants debt-to-income ratio limits to remain in the regulatory system.
