06/09/2021 | ESMA
EU financial markets continued their recovery during the first half of 2021 with valuations at or above pre-COVID-19 levels, as the global economic outlook improved, with COVID-19 vaccine roll-outs and amid sustained public policy support. Fixed income valuations, notably for HY corporate bonds are now far above their pre-COVID-19 levels in a context of increasing corporate and public debt. Increased risk-taking behaviour has led to volatility in equity (e.g. GameStop related market movements) and crypto asset markets, as well as to the materialisation of event-driven risks such as in the case of Archegos or Greensill. Going forward, we expect to continue to see a prolonged period of risk to institutional and retail investors of further – possibly significant – market corrections and see very high risks across the whole of the ESMA remit. Current market trends will need to show their resilience over an extended period of time for a more positive risk assessment to be made. The extent to which these risks will materialise will critically depend on market expectations on monetary and fiscal policy support, as well as on the pace of the economic recovery and on inflation expectations.