A. M. The International Monetary Fund (IMF), through its latest Global Financial Stability Report (GFS), warns of increased global financial risks due to high asset valuations, a highly leveraged financial system, and low market volatility, all amid growing economic uncertainty. These conditions weaken the system and can amplify disruptions, generating an abrupt tightening of financial conditions with significant economic impacts.
The report emphasizes that downside macrofinancial risks have intensified following episodes of high volatility such as those caused by recent trade tensions. The sharp revaluation of risky assets and the response of stock, currency, and bond markets reflect a climate of uncertainty that threatens stability, especially in an environment of tighter financial conditions.
One of the main threats is the persistence of high valuations in key sectors, which implies that potential price corrections could be more severe if the economic outlook worsens. Emerging markets are especially vulnerable, as they face currency depreciations, capital outflows, and greater difficulties refinancing debt amid more costly global conditions.
Also of concern is the high level of leverage in non-bank financial institutions such as hedge funds, which could be forced to deleverage abruptly due to liquidity demands, amplifying market declines. Their growing interconnectedness with traditional banks increases systemic risks.
The sovereign bond market is also not immune to these tensions. Leveraged operations and high levels of public debt in various jurisdictions could trigger further turbulence, while emerging economies face their highest financing costs in a decade, making it difficult to meet their fiscal obligations.
Global political uncertainty and geopolitical risks represent another key driver of instability. High-tension events, such as military conflicts, can lead to drastic declines in asset prices and an increase in sovereign risk premiums, especially in economies with limited fiscal and international reserves.
Given this scenario, the IMF recommends strengthening prudential policy frameworks, strengthening financial system supervision, fully implementing Basel III standards, and preparing crisis response mechanisms. In particular, it emphasizes the need for coordinated measures to mitigate excessive leverage and protect global stability from interconnected and cross-border threats.
