BIS: Investor Complacency Could Lead To 'long-run Turbulence'

The Bank for International Settlements (BIS) likened current market conditions to the pre-2008 crash era when investors, chasing high returns, leveraged up in order to invest in risky assets, despite moves by central banks to restrict access to credit.

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The Guardian reported the BIS's quarterly health check said moves by the US Federal Reserve and the Bank of England to limit risks by raising interest rates had failed so far and unstable financial bubbles continue to grow.

Head of the BIS Claudio Borio further commented central banks could help investors begin to recognise the need to calm asset markets by reconsidering the way they communicated base interest rate rises or changing the pace at which they increase rates.

He said: "The vulnerabilities that have built around the globe during the long period of unusually low interest rates have not gone away.

"High debt levels, in both domestic and foreign currency, are still there. And so are frothy valuations.

"What's more, the longer the risk-taking continues, the higher the underlying balance sheet exposures may become. Short-run calm comes at the expense of possible long-run turbulence."

The BIS's warning follow concerns raised by Woodford Investment Management's Neil Woodford that stockmarkets are in danger of crashing.

Woodford said last week investors were at risk of the market experiencing a crisis similar to that of the dotcom crash of the early 2000s.

He cited historically low levels of interest rates in the majority of developed nations over the last decade, which are pushing asset prices to unsustainable levels.

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Woodford said: "Ten years on from the global financial crisis, we are witnessing the product of the biggest monetary policy experiment in history.

"Investors have forgotten about risk and this is playing out in inflated asset prices and inflated valuations.

"There are so many lights flashing red that I am losing count."