Photo: Hemant Mishra/Mint
Photo: Hemant Mishra/Mint

Bubble trouble

The Institute of International Finance says the world should prepare for a spike in financial market volatility as well as a correction in asset valuation

There is yet another bubble warning: The Institute of International Finance said in a report this week that the world should prepare for a spike in financial market volatility as well as a correction in asset valuation. This warning comes after the International Monetary Fund said a new real estate bubble was building up, while the Bank for International Settlements has focused attention in its latest annual report on renewed financial exuberance.

These warnings come as equity markets across the world are on a roll. The money gushing into India can be partly explained by the improving economic fundamentals such as a shrinking current account deficit as well as lower inflation. The likelihood of policy clarity from a new government that has won a decisive mandate is also a pull factor. But the mispricing of risk across the world cannot be wished away.

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